Trade War – Central Banks – Cryptos – Hogs – Stock Market Positioning
TRADE WAR?! – Those words usually spark market collapses and world wars. No matter what the product or tariff, such barriers to markets always lead to collapse of producers and skewed prices. Higher input costs for manufacturers will collapse many struggling businesses. In a slowing economy with tightening credit, a trade war will be disastrous. A world leader hinting at such a thing (or tweeting), is likely to be the catalyst for a complete market failure. Exit now while you still can.
The RBA comes out with rate information. The AUD-USD has been pushing the Aussie dollar lower. This implies that traders are expecting a move higher by the RBA on rates. If that happens, the AUD will move lower against the dollar. If it does not happen, the AUD will move higher against the dollar. The best way to trade it is to sell the AUD short against the dollar and exit before the release (high risk as price has already moved considerably). Then hop onto the move and ride momentum for a short time (lower risk by time).
ECB is good at soothing markets. Expect their QE to give some minor hope to share prices. Also expect that hope to be short lived.
BOJ has mentioned cutting off QE programs. Japanese markets are scared of losing the free money fountain. Just a hint of such a thing will likely scare Asian markets lower. The policy release this week by the BOJ may put a time frame on the end of QE. If they do, expect some large scale selling in Japan.
NFP with this Non-Farm Payrolls be the one that kills the market? Or will it give BTFD traders the impetus to add to their high risk position? Obviously, I am not impartial (see below for more details).
Bitcoin and Other Cryptos
Bitcoin has not dipped as far as expected, nor moved as high as expected. To me, as a trader, this implies that price is range bound (until the next major catalyst). Those levels (roughly) are $9200 ($10200 in low momentum) and $11200 (look at your own chart and judge for yourself!). IF PRICE IS RANGE BOUND, then it can be scalped within that range to take chops out of market. This is done by selling when price nears the level on the high side and buy when the price dips on the low side. Keep stops in place because when it breaks out to either side, you will be freaking out (if you hold a position). On the downside, a break lower is a place to increase position. On the high side, a break higher is a chance to profit more from a position (when selling).
On a break in either direction, price has the potential to move away from these levels. That means that the position you took at the level (short or long) should be exited at a price near to your entry price. If you choose your levels well, price will get very close to your entry price (close your positions). Price will move against you at some point, so you will have a better price to re-enter the market at a more favorable price if you have exited your position (otherwise you are just losing money).
Near term weakness will continue for a while before that happens (probably a month or more). Price will be moved by government bans, big corporations entry into the space (Goldman just bought an exchange), and news of theft. In real terms, moves are primarily based on demand (as supply is constricted). So wales and investors are driving underlying price while traders are pushing the short term perturbations in market (around 10% to 20% of price).
Very long term, Bitcoin will move higher. Bitcoin is the bearer bond of the modern generation. For a solid move higher to happen, wider acceptance into market must occur (like having it common to buy major purchases like real estate and cars using crypto currency). Price of completing a transaction must drop (it is still less than bank fees for wiring funds). Bitcoin also has the risk of being supplanted as a medium of exchange by another crypto (but for now, none of the other options has such a wide acceptance).
Ethereum has some interesting tech. They have a broader acceptance into market, and a varied role within the crypto space because of their technology. There is the potential that their tech will be supplanted by newcomers into this space, but by the time that happens they will hold such a large market share that it is unlikely that they will be gone quickly (like Netscape in 1990s). If they cannot grow (Microsoft, Apple, Adobe, etc.) to find new markets, they will not survive the crash that will come (probably within the next 10 years). So for now, there is upside (with high risk long term).
Even with good up-side potential, I still cannot get around the fact that the management can print as many ether as they want, whenever they want. That quality alone makes the business a buy-out target for someone like Goldman-Sax because EVERY trading house in the world wants to be able to just print their own money. However, the buyout of this business means that the underlying coin will decrease in value. So long term, it is high risk to be buying ether.
Medium of exchange cryptos are coins like dash, litecoin, ripple, monero, etc. Medium of exchanges cryptos are trying to take the transaction segment of the market away from bitcoin. However, with so many options, the market has not yet decided on which one to use. As with the Beta-VHS technology war (https://en.wikipedia.org/wiki/Videotape_format_war), the best technology will not necessarily win, so it makes it hard to invest.
Ripple – I never liked this crypto because it is from the banks for the banks. Crypto currency takes money out of the hands of banks. Thus ripple is the antithesis of what crypto currency is most useful.
Monero – I like this crypto (long term investment) because of the security features and heightened anonymity. However, the only thing it will take to collapse this currency is a breach in the security. That will likely be many years (decades) away, so near term it is a decent investment (still speculative), if you can get a good entry price.
Dash, Litecoin, etc. – Buy a basket of exchange currencies. One of them will be the medium of exchange in the future, supplanting Bitcoin. However, the one that wins may not even have been invented yet. Any loser is the space will see price go to zero, so expect a crypto basket to hold mostly losers when a winner is chosen.
New entrants into the market have been seeing a lot of speculation. It is too early to figure out who will survive. In the 1990s, during the dot-com boom, any entrant into the space was bid by speculators. The same method is occurring in the crypto space, without any clear tech winners. In the 90s, the companies with the most speculation were often not the survivors (see: pet.com) of a final shakeout (market collapse). So do not INVEST in the ICO space.
If trading it, get in early and look for a big move to take profits (double up in some cases). Trade these ICOs like penny stocks that are being manipulated. Expect that every tweet and news article will drive speculators into the market (that is when you should sell). Every release date or split date will have loads of speculators trying to capitalize on those dates (get out before those dates). If you are very bold, then look for spikes higher as a place to sell the market short (high risk). If you are short, limit the time in market because there is so much speculation that you will get burned longer term.
The dip in price will likely continue through this week’s WASDE report: https://www.usda.gov/oce/commodity/wasde/
WASDE is a huge price mover in the food futures sector. The recent prints have indicated for higher hog slaughter rates and stable imports (so higher supply). Demand is relatively stable until April / May. So this should drive prices lower (often as a spike). This makes an excellent place to get a long option entry. If you are more cautious, wait until later in the week (next week, even) to hunt a better price for a long position on HEM contracts. Volumes will spike on WASDE, which makes the exponential (options) provide entry and exit options (depending on direction).
Traders that took the near term short position, use the WASDE as a chance to exit your near term position. Risk increases after the release as volumes drop compared to the exuberance of the release date. Expect price action will grind lower (taking some premium out of the options) and then reverse.
We all know where the market is headed: Lower. Realizing that, then we are looking to judge when that is going to happen. The short answer is that nobody knows. If you weigh the upside reward for staying in the markets versus the downside risk, you will quickly realize that you should be exiting this market. At the very least, you should be limiting your position size to limit risk.
When markets move lower, they do NOT do it slowly. There are often warning signs, which lately have been volatility markets and bond markets. Other indicators are housing, money printing and debt (consumer, margin loans, etc.). Markets that make lower highs are unable to push through resistance levels, and that is a key indicator of negative sentiment. When it comes right down to it, markets will start to move lower and then be piled onto by every trader that already knows markets are going to move lower.
The price move lower will likely have a dead cat bounce. That means that all of those BTFD traders will pile into a move lower thinking that markets will reverse. Lately, that has been true, but that is also very lucky for them (not skilled). The next move lower will likely be the last move lower (but I have been wrong about this before, too).
Be aware that NOTHING is safe. When markets collapse, EVERYTHING is sold off. This is the sell-everything problem which means that quality is sold along with everything else. So when the market dumps lower, it makes for a great opportunity to bargain hunt quality. This assumes you got out before the collapse and have cash to invest.
Personally, I like gold and oil refining companies as a long term and lower risk investment.
Gold miners that are producing at $1300/ounce at a profit will be making even more money when gold prices move higher. Often, good companies are producing at less than $1100/ounce. When the price moves to $1500 they will be making twice the profit. Gold prices are likely to surge in a falling market because gold is a hedge when markets are overcome with fear. Gold will also profit from higher government debt because when markets fail, governments will ramp up the printing press of paper money to try to stabilize markets (and likely fail).
Oil refiners are not going out of business, regardless of the oil price. The world is dependent on oil, and will be for the near future. Refiners have been tracking the oil price for over 100 years and are very good at stabilizing their supply in the futures market. They are good at insuring that their margins are wide, regardless of the direction moves of the underlying crude. They are also very good at pushing price hikes onto consumers, and slow to remove those hikes when input prices fall. Oil refiners will continue to profit regardless of the market and share prices, underlying input costs or even wars. Until the world breaks the oil dependency, big-oil will continue to profit.
As a higher risk investment, I would buy some physical gold, hold cash and buy crypto. But you already know that is my opinion.