Bitcoin Falls & Equity Pressure Continues
US 10YR Yields Tumble
Ok guys, we have warned about the risk markets consolidation for quite some time and the potential for consolidation (sideways price action) to lead to a big move. Well we think we have our answer as to which way this is going, but first we wanted to make a clear distinction and define what it means to be a “trader” versus being an “investor.”
An investor from our purview is not a trader, but in most cases all traders are investors.
So when we hear that investors don’t care about market timing or trying to do this or that, we kind of laugh, because in reality they aren’t truly being honest about the end goal. The end goal for all investors and traders is to generate alpha, i.e. to make money and to make risk/adjusted decisions. So when we hear “investors” state we are “in it for the long term”, we just smile.
Nothing could be more further than the truth, NOBODY LIKES LOSSES!
So it is one of our goals here, to educate you on market dynamics and to recognize market mechanics. One of the main topics of our letters the last few weeks has been both the consolidation in the equity markets and Bitcoin. Another theme has been the masked selling in the MEGA8s as we call them. This market dynamic is less obvious to many, that is the top market cap stocks stalled nearly 3 months ago. This was significant to us because we know they have been the recipient of basically all the retail and fast money buying over the last 2 years. When we saw this start to stall out, we mentioned this was a warning side, for two reasons:
The top 8 market cap companies no longer saw upside appreciation as higher highs were no longer the theme, which is attributed to investor chase, the continuation of buying no matter how high the price goes.
The fact that prices were no longer rising and the fact that over each successive week, meant that the constant influx of retail monthly ETF, 401k, IRA and spec buying was in fact, being sold into by very large systematic long term buy and hold types exiting out and using all this inflow to do so.
See in today’s market, with the amount of capital base that exists, equities should exhibit a rising slope, a continued upward incline due to the systematic buying that occurs on a daily basis. (no real sellers of size, just fixed small realized selling by pensioners and boomer retail) The fact that the high flyers have gone nowhere, means billions of dollars of “RISK” were being off loaded to these buyers and done so in size that equally matched the daily buyside programs.
This is done intentionally as there are very large sophisticated supply/volume analyzing execution platforms, whose job is to mask this liquidation so as to not set off predatory HF algos whose job is also to profit from this type of action.
For us and now for you to understand this is why last Friday’s OpEx trade was so important. It was the signifier that the selling pressure was overwhelming organic demand and it seems some HFs got involved here with mechanical and systematic sell side programs. Here is a picture of the daily chart of the MEGA8s. We highlight Christmas Eve 2024 as the first real sell area, then we have the breakout up, then continued selling into that pushing it back into our longer term trend channel. Then some 46 trading days later, the breakout to the downside and impending 21/50 VWMA death cross now:
When we look at the QQQs ETF, you can see 526 area was our initial target down and indicator for a break lower if it failed. Well you can see what happened and you can see the massive triangle wedge that has been in place for 3 years now. We can only tell you that this wedge if broken will most likely lead to a massive downdraft in liquidation which could see the QQQs fall 30 to 40% over time:
Now we aren’t saying this wedge is going to break, but rather simply pointing out the technical attributes of a pattern like this. We suspect retail will catch the knife here and start buying all the way against the bottom of this wedge and house stops if any just below 500. So honestly 504 will be significant here, but technically, some serious damage has been done.
Moving over to Bitcoin, well you guys have been warned for many weeks and we have driven this chart down your throats. We suspect HF buying here at $87k and this means levered types who will also bail on a move below $85k no doubt, this is fast money cannonball types looking for a quick ramp back up to $93k, but if they don’t get it in quick fashion, they too will bail:
Ultimately Bitcoin will go back into that trading band we have flanked from $71k to $76k and a break of there will target the 200wkMA at $45708:
So with that let’s take a look at the MEGA8s data where 7 out of the 8 components now are in the red. We will not chase the hedge lower this week but wait for a rally to put one on.
The market cap chart of the MEGA8s points out the technical damage and our red line of death that we have had up there for quite some time:
As far as yesterday’s settles and rolling net changes, the US Treasury market continues to see buyers, and a safe haven type bid:
As far as the MCA CTA Market Sentiment, the Euro and Canadian move to a short bias sentiment:
As far as the StrategyB data, well they bought more Bitcoin and the equity premium continues to tumble (1.57x now) as the stock continues to fall.
The call selling strategy that convertible bond types use, isn’t paying off and no doubt maybe some have resorted to selling the stock outright:
Ok we will see how the markets settle out today, for now we look forward to the Nvidia earnings tomorrow which could add more insult to injury in regards of the negative sentiment! For now US Treasuries are well bid with the 10Y plunging 10.4bp testing the top end of our downward trend channel. We suspect a break back down into this channel will see added downward rate pressure here:
We also want to note that META is now trading near that important first support $639 area now down 13.2% from the highs:
Ok guys, that is it, mind your risk, be prudent with your profits and don’t be a pig. We know complacency abounds and that every recent down move has been bought with a ferocious appetite. That kind of conditioning doesn’t change overnight, just know these patterns take years to develop and sometimes you have to recognize value. As we said yesterday, Warren Buffett doesn’t sell for 3 years straight and accumulate $335Bn in cash for no reason. We said it in our podcast yesterday, he is a legend and sometimes you have to do as they do and recognize value or overvalue. We think Uncle Warren has spoken and as traders will listen, you, you longer term investor types that don’t like to time markets, we get it, but at least raise some cash or put on hedges, there is nothing wrong with active management!
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