Trader Note

(Slow market) Be certain of direction or be caught behind for a long time.

2017-11-06-WEEK

NFP, Bonds. RBA. Bitcoin. CME. See: EVENTS

This Week

USA Daylight Savings comes into effect, so check your market open and close times (especially if you are based overseas).

The NFP was a big hype. Numbers make the economy look good (it is not), but lately that scares traders into thinking that the FOMC will raise rates and cut money printing. On Monday, stock future prices will likely move lower, erasing any Friday gains. Price already moved lower into the close, so on Monday it is really just a continuation of price action that is expected.

Central bankers will be pontificating at events this week. They will be hyping agendas and policies that will be unimpressive to markets. Keep an eye on the RBA, but ignore the rest.

The US bond curve has flattened. Keep an eye on the 10 year and 30 year auction results. It will likely be a chance for a quick chop on ZN / ZB. Any failures in the auctions will slam markets, so keep stops in place just in case of emergency.

  

RBA & AU Housing

The RBA will give their rate statement this week. Sydney real estate prices took a dip last month, which is an early indication of a cooling market. The RBA wants to move rates higher, but they don't want to collapse the fragile real estate boom because it is the primary sector providing tax revenues. Tighter credit restrictions will soon be hitting the Australian housing market where leverage speculative buying has been rampant. Buyers have used their existing properties (without accrued collateral) to leverage 100% loans on additional properties. In a cooling market those buyers will need to dump those underwater investments before they are foreclosed, leaving banks and montage funds holding the bag.

So the Australian economic future is on a knife edge… and the RBA will likely slam it into a fractured mess.

Cash buyers will be excited for the dip, while the overleveraged will be reliant on bailouts. Unfortunately, the MOST overleveraged are the banks and lenders, so those cash buyers' bank accounts may be wiped away when the government cannot afford to bail out the banks that have caused this mess.

  

Trading Bitcoin

If you took profits on part of your position, as I did, then you probably feel like you made a massive mistake (this is why we hold a core position). As a trader, we all look for opportunities to sell and get back in. However, in an exponential and speculative market, timing that can be a challenge where you miss out on profits by selling and re-entering at a higher price.

So in the near term, buy cautiously. If price action is too fierce, wait for the split price dip to get a bigger position. Long term, Bitcoin is a buy-and-hold. Keep a core position while trading only a smaller percentage of your position.

When the gold market was booming (early 2000s), one of the fathers of the gold market - Jim Sinclair at www.jsmineset.com - advised traders to sell 1/3 of their position into strength and profit taking. Then re-enter on price dips. He also made the point: Sell rhino horns; Buy fishing lines.

Be aware that a dip in Bitcoin will occur after the code split when the rambunctious speculators exit their positions on both new chains. So the current rhino horn only has less than 2 weeks to peak. It may begin the decent before that occurs so timing the exit may be a challenge.

Expect that the recent hype will be forgotten by next week but price action will continue to be strong to the upside long term. The price action will reflect some fear of code updates and some speculation on the potential for profitable split. With the Nov 13/14 date expected for a split, there should be more fear in the market, but many speculators do not understand the ramifications of code updates. After the split, look for a decent size dip in price when code stability is not assured. Potentially, price could make a large dip if miners decide to drop out of this market, leaving Bitcoin price plummeting.

As a long term investor, it may seem like a good time to buy but use caution. Limit your risk by limiting your size. Scale into your position, buying in small increments not lump orders at-market prices. Market price perturbations, high volatility, can make for good entry points with at-limit orders. You may lose a little profit from chasing price (moving orders higher) but if you are long term investor, the small early percentage loss will likely be made up in longer term gains.

  

CME Bitcoin Futures

The CME has decided to go for a piece of the action in crypto currency with a Bitcoin Future contract. This means that they see potential in riding the speculation in this market. This has led to a surge in the Bitcoin price before the code updates in 1 weeks when the coin price will drop. This is allowing many speculators to sell out into this buying demand following the adage: Buy the rumor, sell the news.

Be aware of what a CME Bitcoin contract really means: PPT - Plunge Protection Team - will try to manipulate the Bitcoin price the same way they have pounded the gold price.

This is NOT a Crypto backed contract even though it would be easy to provide storage for these digital bits. Instead, it is a speculative futures contract based on an arbitrary index, which will likely be cash settled without any crypto ever changing hands. So the real speculators will be able to get into this market using other people's money. The real speculators are the banks, hedge funds and even Jamie Diamond lackeys. They will be able to gamble on crypto futures without having to actually deal with crypto currencies or even own any actual digital bits. So these contracts will slam price around without providing any income to miners or the underlying market.

We should expect that the PPT will use these contracts to manipulate price of Bitcoin in hopes of making the USD look a little less abysmal. Because Bitcoin is an international medium of exchange, CME control of the market will be limited. One day, they may become the default exchange rate reference price, which will provide them more power in markets than this contract deserves.

Such market acceptance also means that the SEC is going to be challenged when arguing against crypto currency. It will likely necessitate a new definition and legislation for ICOs. However, that legislation will only occur when banks, trading floors and funds have enough fingers in the pie to profit.

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