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Don’t be a hero

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Wowzers! What a week that was. I’ll keep the post brief this week as there really isn’t much in the way of positivity on my radar, so the overall message is really just trade small, be careful, stick to stop losses or maybe just take the next few weeks off. Don’t be a hero in this market. So many people are trying to catch the bounce and ‘use this volatility to make the big bucks’, but trust me, for every 10 that enter, 1 will leave. So best stay out of the market until the culling is over. That said, many charts are in the weekly timeframe this week as some longer-term perspective is often helpful.

Look out below!

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The markets got smashed last week and even managed to close the US session on the lows. Strangely, sentiment is not at an extreme and it seems that through all of this, retail investors and traders have been net buyers. To us, this sounds like more pain is on the way. So without too much pontification, let’s look at some charts and see what we can find (other than ‘look out below!’ signs nailed to pretty much everything).

How I got Bitcoin wrong

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I have been rather vocal over the last few years on what my price target was for Bitcoin in December 2021. As some regular readers might remember, I had called for a price of $200k (yes, two hundred thousand Dollar) per Bitcoin. Clearly, I got that one wrong. It was a forecast made in 2018 and one that got rather close to being perfect, even though it was ultimately wrong. Let’s look at how I got Bitcoin wrong.

Fading the calls

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$940bn worth of options traded on Thursday last week, making it the single biggest volume day for U.S. options… ever. Interestingly, 70% of the options traded have expiries less than one week. Also worth of note is that options volume was 140% equities volume and the vast majority of those options being bought were calls. …

Fading the calls Read More »

Bigger picture

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There are not many good looking setups on the local market for us this week, so we’ve decided to rather look at some bigger picture themes. On that note, last week we wrote about how the market is looking and feeling a little stretched, although it seems that we got it wrong. Overall, sentiment is neither extremely bullish or bearish at this stage and equity positioning by larger active funds is still mostly underweight.

Headed for new highs

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The market has become very strange indeed. The trend is so strong and there are so many dip buyers around that it seems the part will never stop. Although, whenever there are a few down days, the mood turns really dark and a semi-panic seems to take over. This is one more thing that worries us when thinking with the longer-term hat on. Why are traders to extremely negative when the market ticks down only a few percent? How much is the average trader geared and long the market? What happens when the market pulls back 10%? What happens when the Fed actually hikes interest rates? And what happens if the Fed hikes rates and starts tapering at the same time? These are some of the questions that we are pondering. But for now, the show goes on and the bulls keep dancing. Buckle up, because we’re headed for new highs.

Purely a technical perspective

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Our bullishness last week was clearly not the right call. Volatility has crept into the market and there is a lot of uncertainty around what happens next. Therefore, in order to clear our own minds of bias, we will be looking at markets from purely a technical perspective this week.

Jackson Hole week

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All eyes are on Jerome Powell and the Jackson Hole symposium this week. Jerome Powell is expected to talk on the 26th of August and the market is waiting to hear when we can expect tapering. Although tapering the does not mean a sudden and abrupt end to QE, the market certainly will pretend that it does up until the very minute that it actually happens. We think it is almost inevitable now that we see some tapering by the end of the year. This does not mean that we see interest rate hikes, or a complete end to bond/asset purchases by the FED. It does mean though that the rate at which they are providing liquidity to the market will slow down. This could cause a bit of a speed wobble and some risk-off sentiment.

Setups are sparse

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excited about. Overall though, we expect the week ahead to be ‘risk on’. At least for the developed world. South African markets might be facing its own headwinds and continued currency fallout as a result of the cabinet reshuffle last week. Setups are sparse, so play defense and don’t try to force trades that are not there.

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