A Market Timing Report based published Saturday, February 3rd, 2018
I deliver focused comments on market timing once or twice a week. These are supplemented with daily “Tweets/StockTwits” (see links below). If you are not interested in Bitcoin, please see the prior post and scroll through the Bitcoin charts to the SP500 section HERE. Thank you.
Bitcoin Update 2-04-2018 at 8:11 pm : Bitcoin is right on the edge. It must hold this level or it will drop to about that horizontal line at about 5321. Look over the prior comments to understand what the implication of the market timing wedge is! Bitcoin is now at the bottom of that wedge. I believe it’s more likely to AT LEAST form a double bottom or descend to the next level of support and do so, than go straight back up due to the severe technical damage we’ve seen.
Also realize the support line is just the next market timing target, not a definite braking point for a fall. We’ll have to see what the charts look like when and if Bitcoin reaches the support line to know whether it’s worth a shot. I do think it’s possible that it could flush out a lot of speculators however. Stay tuned.
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Bitcoin Update 2-04-2018 at 12:37 pm : Bitcoin has failed to reverse and stay above the 9025 1-16-2018 market timing low on Bittrex (this low will vary by exchange). That’s a negative I see today with the price at 12:38 pm ET at 8451 on Bittrex. The next minor support is 7900, yesterday’s low on Bittrex and then the lower line of the market timing wedge in the chart below which today is at 7854.
Remember that numbers that are based on trendlines will change from one day to the next and prices will vary across exchanges. Exchange prices are about the same if volatility is low, but when it rises, generally you will see prices varying greatly across exchanges.
Breaking both of those market timing support lines could lead to further significant damage to Bitcoin’s chart/price. Remember also, however that markets can swoon below obvious support lines, shake out some traders and investors and then zoom back up, so you need to have a trading/investing plan around your cryptocurrency holdings, such as “I’ll take an X% loss, but below there, I am OUT.”
Taking Profits on Speculations After Large Gains
You also need to learn how to take profits on speculations like cryptocurrencies or small or microcap tech companies. Selling your entire principle after the price has gone up in big way is something I just did with Ripple recently when its price went up to over 14 times my initial investment. That’s the minimum you should take out of your speculation. In fact, I took out the principle PLUS 100% profit and will ride the rest of my Ripple unless the story falls apart. I still have a 100% profit regardless of whether the rest goes to zero. This is a luxury I realize, but when it happens, don’t fall asleep! At least take out principle on speculations with huge profits! If the story keeps improving and the price keeps rising, you may want to wait for the first increase in volatility to take this kind of profit. Above all, have a plan that works for you. This is simply one idea about how to manage speculations.
Risk Management of Speculations
Going back to the risk side of the equation, if you have no “get out point,” which should recognize the degree of volatility of cryptocurrencies, you are not a serious investor. If a coin can vary by 20% in a day, you don’t want to use a 5% stop. You simply should not invest in it in the first place (or alternatively you should invest far less) if you cannot take a certain level of loss. Position sizing relative to your entire portfolio is something you must learn about and practice, or you are simply not serious as an investor or trader. Google it and read Van Tharp’s book (not light reading, but covers the concept well) “Trade Your Way to Financial Freedom.” Position size properly and protect your principle and large profits with trailing stops (Google it!) and you will be ahead of the majority of “fly by the seat of the pants” investors.
I’ll give you one example of risk assessment and management related to Bitcoin: GBTC, the Bitcoin Investment Trust, which has fallen 66.4% from its all time high of 38.71 and is still 40.5% overvalued vs. the net asset value of the Bitcoin it holds as shown by Morningstar HERE! You are paying a huge premium for it, which could go to zero on any single day.
If you own GBTC (which you shouldn’t in my opinion), and you’re not willing to hold through a decline of about 75% (which may or may not occur from this point on), you should not buy it in the first place. That number takes into account the inherent volatility of the shares. You should not own ANYTHING with that amount of volatility unless you are willing to lose most or all of your money. Invest accordingly and please, buy Bitcoin if you want to “own Bitcoin,” don’t buy an ETF/trust that sells at a massive premium to what it owns!
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Be sure to review the charts below to add clarity to the above text….
Bitcoin Update 2-03-2018 at 9:10 am: Bitcoin survived a market timing test of the lower line forming the normally Bullish downward wedge shown in the chart below. Please read the prior post HERE to catch up (3 charts and comments on what can “save Bitcoin”). The second phase of recovery, if this recovery is in fact real, is the upside reversal above the horizontal line shown in the chart. These are psychological levels that can trigger buying, although they are not volatility based levels. Look at them as checkpoints of technical chart healing. The next step would be breaking that Bullish market timing wedge to the upside which would cause a major swing UP in my view. If BTC merely rises to the upper wedge line and fails, the prospects of a real “recovery” would be greatly diminished.
My new post about the stock market, gold and interest rates will be out by Sunday at the latest. It’s been a fast paced week!
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