Crypto Market Update: Blow Up

Crypto Market Update

My weekly crypto market update uses a standard set of information sources.

Crypto Indexes

The Bletchley Indexes “offer the most thoughtful and consistent approach to index construction” according to CoinMetrics. 

Original “top X” indexes were launched in June 2017, followed by a market-wide index in December 2017 and sector specific indexes in February 2018. In total, there are 13 Bletchley indexes, with charts over various timetables available for each on their site.

Below is an alternate view of the performance based on the downloadable data made available by Bletchley. This view is intended to give a side-by-side snapshot of a handful of indexes.

crypto index market update 05.14.18.png

Obserservations

  • Bletchley 10 and Total Market down over 16% against USD over the past week
  • Both Remain up over 20% over last 30 days
  • Even Indexes roughly down the same amount as weighted indexes over last week
  • Platform, Application, and Currency indexes all down against USD and BTC.
  • Currency has performed best recently and is up over 25% vs BTC over last 90 days

Global Crypto Charts

For a quick look at the global markets from another perspective, Coinlib.io provides simple charts with a lot of info, including Bitcoin marketshare, a visualization of the top 20 currencies by volume and market cap, and more.

Total Market Cap of Cryptocurrencies: $410.58 billion

total market cap 05.14.2018

 

Market Share of Top Cryptocurrencies

Market Share of Top 5 Cryptocurrencies - 05-14-18

Bitcoin’s market share has declined to ~36%, close to all-time lows. This continues a long-term declining trend, with new currencies such as EOS and BCH taking some of that market share.

Marketshare of top 20 cryptocurrencies

The top 20 currencies (by market cap) currently make up roughly 85% of the total crypto market share.

TradingView Technical Indicators

Based on data and info from TradingView (Click  for 30% off a pro subscription)

tradingview technical indicator score crypto 05.14.2018

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

  • BTC has turned much more negative in the short-term, while the 30-day technical analysis remains very positive
  • ETH remains postive vs USD, albeit less strongly than last week.

CRYPTO PERFORMANCE

bitcoin eth performance 05.14.18

  • BTC down over 7.5% vs USD over last week
  • BTC up 418% in last year – and “only” 35% in last 6 months.

Google Trends

Google Trends Bitcoin + Crypto 05-14-2018.png

Google Trends have mostly flattened out after falling significantly in February.

I’m tempted to stop tracking this, as  I believe there will be fewer searches as the public gains knowledge. However, significant price action could still lead to search volume surges.

WooBull Charts

Bitcoin NVT Ratio - 05.14.2018

NVT RatioThis long-term cycle tracking ratio has mostly continued a downward trend, although a slight uptick in the past few days. Regardless, the ratio is quite high and suggests a further downturn is due.

 

NVT Signal -This short-term signal has moved down significantly over the past week from 142 to 126. It appears to be breaking a support trend, suggesting bearish price movement in the short term.

In the original post introducing NVT Signal, 150 was indicated as an overbought signal.

Willy Woo recently gave is own update using the two charts above in a Twitter post. Great insight as to how he reads these charts. His take:

Putting it all together, BTC is still unwinding from mania, I think we are on the plateau of another dead cat, I put the next downward move, more gentle this time in the window of 7-14 days from now. /7

But price-wise I don’t think we are that far from the bottom. So not far to go on the short side, lots of long to go when it fully unwinds and sets up in the second half of this year. /8

CoinMetrics Charts

CoinMetrics has provides great charting tools for a number of top cryptocurrencies. Kalvichkin’s NVT is a regular check for checking short term trading signals. 

Kalvichkin's NVT - BTC ETH 05.14.2018

Kalvichkin’s NVT – Similar to NVT Signal, Kalvichikin’s has begun to trend downward both both BTC and ETH.

Articles of Note

On Radical Markets

Here’s a post from Vitalik Buterin inspired Eric Posner and Glen Weyl’s new book, Radical Markets,

First, although I spend most of my time in the blockchain/crypto space heading up the Ethereum project and in some cases providing various kinds of support to projects in the space, I do also have broader interests, of which the use of economics and mechanism design to make more open, free, egalitarian and efficient systems for human cooperation, including improving or replacing present-day corporations and governments, is a major one.

Consider a system where property owners themselves specify what the value of their property is, and pay a tax rate of, say, 2% of that value per year. But here is the twist: whatever value they specify for their property, they have to be willing to sell it to anyone at that price.

Sitting with the cyber-sleuths who track cryptocurrency criminals

Crypto isn’t as secure as many believe, as shown in this inside look at fighting criminals using crypto.

Once multiple accounts have been linked to the same owner, you can try to figure out who that owner is. Linking Bitcoin accounts to real-world identities is possible because information tends to leak out. Regulated cryptocurrency exchanges—generally those in the US or Europe—must follow know-your-customer and anti-money-laundering rules, which require people to hand over identification before using their services. Some people are even so careless as to post their supposedly private Bitcoin addresses in online forums. “What people forget is that the blockchain is just one half of the equation,” says Knottenbelt.

In blockchain we trust – MIT Technology Review

Regardless of the price, blockchain will have major implications, as predicted in this piece on how this is a shirt akin to the advent of double ledger bookkeeping.

A new form of bookkeeping might seem like a dull accomplishment. Yet for thousands of years, going back to Hammurabi’s Babylon, ledgers have been the bedrock of civilization. That’s because the exchanges of value on which society is founded require us to trust each other’s claims about what we own, what we’re owed, and what we owe. To achieve that trust, we need a common system for keeping track of our transactions, a system that gives definition and order to society itself. How else would we know that Jeff Bezos is the world’s richest human being, that the GDP of Argentina is $620 billion, that 71 percent of the world’s population lives on less than $10 a day, or that Apple’s shares are trading at a particular multiple of the company’s earnings per share?

 ‘Ebay for CryptoKitties’ Raises $2 Million from All-Star VCs
Digital goods are just getting started and marketplaces seem like a natural way to exchange them.

 users need a place to more easily buy and sell those items.

It turns out OpenSea wasn’t alone: the decentralized online marketplace for physical itemsOpenBazaar has plans to open up its platform for digital items such as CryptoKitties as well, plus OPSkins recently created Wax, a platform for spinning up decentralized exchange services for these items.

Word on the street: A big week for institutional interest in crypto

includes:

JP Morgan’s boss of blockchain project says more to come

NYSE owner planning bitcoin swaps and crypto exchange

Former Goldman Sachs president backs blockchain

The 10 largest ICO fund raises: successes, controversies and lessons learned
The top ten ICOs have been very successful in gaining early positive attention around their projects; however, many on this list have had lackluster performances in the time since their ICOs.

Final Thoughts

Bitcoin and the crypto markets more widely look susceptible to a short term price drop. Long term, there are are still many positive signs that it will “blow up.”

For me, I grew up listening to hip hop, I grew up in Oakland. It’s a little bit more like, “let’s try to make something that doesn’t suck, let’s try to do great stuff, let’s try to make big things”. But it’s a little bit less of, “let’s create an in-crowd and define all the things that that in-crowd hates so that we all feel closer to each other”.

Weekly Cycle: Stay Vigilant

In 1974, near the peak of his fame, Paul Simon started taking music lessons.

Even the best don’t know what will l happen next, and it pays to stay vigilant.

Stock Market Outlook 05.14.2018

Each week, I review the market using a specific set of information sources to gauge the stock market rather than relying on headlines from news sources looking to generate attention. Weekly checkups give me the opportunity to spot trends, while not overreacting on a daily basis.

Index Performance & Technical Indicators

weekly cycle - stock market perfornace and technical indicator scores 05.14.18

Performance Observations
  • VIX is down over 11% over last 7 days
  • MJ (cannabis) up 5% in last week
  • Cybersecurity (HACK) is up nearly 15% over last 90 days
  • China Tech (CQQQ) up nearly 35% over last year
Technical Indicators Observations

Based on data and info from TradingView (Click  for 30% off a pro subscription)

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

  • Trading signals have turned overwhelmingly positive for nearly all indexes on list
  • BKF (BRIC index), CQQQ (China Tech), MJ (cannabis) and VFH (financials) saw biggest positive changes
  • VNQ (Vanguare REIT index) has fallen the most
OldProf’s Risk Analysis

Each week OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf short-term conditions have improved somewhat:

Short-term trading conditions have improved. The borderline rating was almost poor enough to take our trading models out of the market. A strength of our modeling approach (Thanks, Vince!) is a touch more patience than shown by many technical systems. This has a mild cost, and can reap great rewards. This week was a good example. We continue to monitor the technical health measures on a daily basis. The long-term fundamentals and outlook are little changed.

 

He also notes that the chance of a recession has increased to 25%. While not at a worrisome level, he notes:

That said, we watch this quite closely and plan to reduce position sizes if the risk grows much larger.

 

StockTrader Recap

Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.

This week, Hanna writes that after some worrisome consolidation, short-term conditions showed improvement late last week:

The indexes were looking a bit rocky the past few weeks, with a consolidation at lower levels with no real attempt at an upthrust — but the rally late in the week certainly helped prospects.   The bulk of weekly gains came Wednesday and Thursday but Thursday’s move up helped change the complexion of the S&P 500 and Russell 2000 charts which we’ll show below.

Short term: After a lot of consolidation at lower levels – which is a concern – we saw a reversal here late in the week.

Long term: Still very positive for the “buy and never sell” crowd.

Technical Update

Hacked (subscription-only) publishes a weekly technical update on U.S. indices with a weekly analysis of the S&P 500, NASDAQ, and DJIA, as well as a general market outlook. Other posts include trade recommendations (stocks, crypto & forex markets), worldwide-market updates, ICO analysis, and much more.

This week, Hacked’s outlook is “Short- and intermediate-term bullish”, which is more positive than the previous two weeks. Still, they warn “Short- and long-term bearish whenever S&P 500 and NASDAQ break their respective intermediate-term supports. Considered less likely in the short-term after this week’s price action.”

More info on in the weekly update.

Articles of note
The Projected Improvement in Life Expectancy

Bill McBride at Calculated Risk analyzed reports from the CDC and found some interesting facts on life expectancy:

Using these stats –for those born this year (in 2018) – more than two-thirds will make it to the next century.

Also the number of deaths for those younger than 20 will be very small (down to mostly accidents, guns, and drugs).  Self-driving cars might reduce the accident components of young deaths.

An amazing statistic: for those born in 1900, about 13 out of 100,000 made it to 100.  For those born in 1950, 199 are projected to make to 100 – a significant increase.   Now the CDC is projecting that 2,111 out of 100,000 born in 2014 will make it to 100.

When Intelligence Fails Miserably

Ben Carlson writes about how intelligence can backfire, citing two well known examples in Enron and Long Term Capital Management, and includes a few lessons that can apply on a much more micro level:

It’s easier to fool yourself with complexity. Complexity in business and investing makes it easier to game your own system. Enron and Long-Term Capital were run by extremely bright people who tried to implement complicated processes to run their business activities. And these complexities allowed everyone within the organizations to be fooled by randomness or turn a blind eye to what was going on.

Warner Sells Spotify Stock

Major record labels like Sony and Warner have sold off Spotify stock, and Bob Lefsetz believes it’s another example of short-term thinking, which nearly every company is guilty outside Amazon:

This is what’s wrong with the record companies, this is what’s wrong with AMERICA! The short-term thinking.

no one in corporate America is a builder other than the founder, they’re all custodians, looking to make their bonuses, playing to Wall Street.

Except for Jeff Bezos.

Tech’s Two Philosophies

Apple and Microsoft make tools for humans to use; Google aims to replace human processes, or so writes Ben Thompson in a great piece on the difference in philosphies among tech companies:

In Google’s view, computers help you get things done — and save you time — by doing things for you. Duplex was the most impressive example — a computer talking on the phone for you — but the general concept applied to many of Google’s other demonstrations, particularly those predicated on AI: Google Photos will not only sort and tag your photos, but now propose specific edits; Google News will find your news for you, and Maps will find you new restaurants and shops in your neighborhood. And, appropriately enough, the keynote closed with a presentation from Waymo, which will drive you.

This second philosophy, that computers are an aid to humans, not their replacement, is the older of the two; its greatest proponent — prophet, if you will — was Microsoft’s greatest rival, and his analogy of choice was, coincidentally enough, about transportation as well. Not a car, but a bicycle:

He notes Steve Jobs’ bicycle analogy, which I particularly like here at Bicycles&Blazers,

But fortunately someone at Scientific American was insightful enough to test a man with a bicycle, and man with a bicycle won. Twice as good as the Condor, all the way off the list. And what it showed was that man is a toolmaker, has the ability to make a tool to amplify an inherent ability that he has. And that’s exactly what we’re doing here.

Tesla is another company that appears to want to replace humans by doing the driving for them, especially compared to other companies offering self-drive assist features. Volvo requires drivers to go no more than ~10 seconds without touching the wheel using their self-drive feature.

Should our machines sound human?

Last week, Google held a presentation where they introduced Duplex, which can have human sounding conversations. The tech is impressive and it raises a number of concerns. Jason Kottke rounds up a few links on the subject and concludes:

For now, it’s probably the ethical thing to do make sure machines sound like or otherwise identify themselves as artificial. But when the machines cross the AGI threshold, they’ll be advanced enough to decide for themselves how they want to sound and act. I wonder if humans will allow them this freedom.

Final Thoughts

There’s been a lot of concern around the short-term market conditions recently. This week there’s an improvement among technical indicators and expert analysis.

 

Crypto Outlook: Quantity Counts

Crypto Market Update

My weekly update on the crypto market intends to look at the market from a macro perspective. With a majority of the crypto market cap concentrated on Bitcoin and a handful of other tokens, my focus is on the major coins. I check a standard set of information sources each week and include links to articles of interest.

Crypto Indexes

The Bletchley Indexes “offer the most thoughtful and consistent approach to index construction” according to CoinMetrics. 

Original “top X” indexes were launched in June 2017, followed by a market-wide index in December 2017 and sector specific indexes in February 2018. In total, there are 13 Bletchley indexes, with charts over various timetables available for each on their site.

Below is an alternate view of the performance based on the downloadable data made available by Bletchley. This view is intended to give a side-by-side snapshot of a handful of indexes.

bletchley crypto indexes 05-07-2018

Obserservations

  • The Bletchley 10 is up over 75% vs USD over last month. As has been the case historically, the even index performed even better, up nearly 100% vs the dollar.
  • The total indexes have seen similar results over the last month, both versus the dollar, as well as mirroring the improved performance of the even-index.
  • Currency Index has improved over the last week after lagging behind application and platform indexes over last month.
  • All three sectors have outperformed BTC over last 30 days, though only currency shows positive gains over last week.

Global Crypto Charts

For a quick look at the global markets from another perspective, Coinlib.io provides simple charts with a lot of info, including Bitcoin marketshare, a visualization of the top 20 currencies by volume and market cap, and more.

Total Market Cap of Cryptocurrencies

crypto total market cap 05.07.18

Market Share of Top Cryptocurrencies

Bitcoin’s market share has declined to ~38%, close to all-time lows. This continues a long-term declining trend, with new currencies such as EOS and BCH taking some of that market share.

Marketshare of top 20 cryptocurrencies

The top 20 currencies (by market cap) currently make up roughly 86% of the total crypto market share.

TradingView Technical Indicators

Based on data and info from TradingView (Click  for 30% off a pro subscription)

crypto tradingview technical signals 05.07.18

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

  • ETH has surged compared to BTC and USD over the last month. Technical indicators suggest the tide may be swinging to favor BTC in the short term.
  • USDT has outperformed USD by over 6% in the last year.

CRYPTO PERFORMANCE

crypto performance 05.07.18

  • BTC has been mostly flat the past week, while ETH has surged.
  • ETH has doubled over the last month (versus USD)

Google Trends

bitcoin google trends

Google Trends have mostly flattened out after falling significantly in February.

I’m hesitant to keep tracking this, as my assumption is that there will be less searches as the public gains knowledge and no longer needs to search for the term. However, significant price action could still lead to search volume surges.

WooBull Charts

Bitcoin NVT Ratio - 05.07.2018

NVT RatioThis long-term cycle tracking ratio has continued it’s downward trend yet remains well above the long term “normal range,” suggesting a downward turn could be imminent.

 

Bitcoin NVT Signal Chart 05.07.2018

NVT Signal – This short-term signal continued its upward trend again, reaching a recent high of 142. In the original post introducing NVT Signal, 150 was indicated as an overbought signal.

Overall, there is potential for the upward trend to continue in short-term, though NVT Ratio suggests a downturn is looming.

CoinMetrics Charts

CoinMetrics has provides great charting tools for a number of top cryptocurrencies. Kalvichkin’s NVT is a regular check for checking short term trading signals. 

Kalvichkin's NVT - BTC ETH 05.07.2018

Kalvichkin’s NVT – Similar to NVT Signal, this suggests an upward trend is likely to continue for both BTC and ETH in the short term.

Articles of Note

Is Ether a security?

I tend to overlook most regulatory concerns, assuming they’ll sort themselves out and should only be speed bumps in the long run. If the SEC determines ETH is a security, it could have repercussions for some whales. The fact that VCs have lobbied the SEC for a ‘safe harbor’ both shows how important this is, and makes me think there won’t be any major negative impact with some sort of compromise reached.

Crypto Moats

The open nature of crypto currencies allows for code to be copied or forked easily, making it much harder to establish moats (to use a Warren Buffet phrase) to protect from competitors.

Robert Miller, Director of Business Development @medical_chain, wrote on the topic and suggested some potential moats, including:

  • Superior brand
  • Superior developers
  • Partially/fully closed source code
    “Cryptocurrencies might withhold some or all of their code in the future to keep competitors from taking their code. Spencer Noon touches on this in his post The Persistent Forker but developers could put their code in a “black box” that was able to prove the code did not change over time.”
  •  Life span
    “Nassim Taleb introduces the idea of the Lindy Effect in his book Antifragile. The Lindy Effect states the future life expectancy of non-perishable assets is proportional to their current age. In other words, the longer something has been around the longer we can expect it to stay around.”
  • Network effects
  • Good governance
Fred Wilson counters Warren Buffet on Crypto Investing

Speaking of Warren Buffet, he recently made some remarks about Bitcoin and crypto, saying:

When you buy cryptocurrency, Buffett continues, “You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.”

On AVC, Venture capitalist Fred Wilson countered by stating that he’s not looking at crypto correctly, assuming they are collectibles, rather than fuel:

But what these crypto tokens are is entirely something else. They are the fuel that powers a new form of technology infrastructure that is being built on top of the foundational internet protocols. Ethereum and EOS are smart contract platforms that allow developers to create decentralized applications (Dapps in the vernacular of crypto). Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.

It’s a good counter from someone who invests more like Buffet than many might assume, given they both look to buy and hold for a long investment period.

The end of ICOs

While enormous amounts are still being raised in ICOs, with over $8 billion raised in 2018 already, it’s increasingly coming in private sales. In the Token Economy newsletter, Stefano Bernardi writes about the downside:

And I’m bored.
I’m bored because I now see startups having to spend 6 figure sums on lawyers instead of building their products.
I’m bored because I see people making a killing from being accredited investors and thus being able to access opportunities that others can’t.
And I’m bored because all of this regulatory attention and focus is necessary, given that the scammers army has found its new honeypot.
We really can’t have nice things.

And makes his prediction for the future of ICOs:

Very hard to say, but our guess is that “normal” VC rounds will become more of a norm, there will be fewer public ICOs from legit projects, and the tokens will trade on exchanges directly with the company, or its treasury unit, or some specifically chosen early investors acting as market makers.

 Why Decentralization Matters

Many of the early believers in Bitcoin and cryptocurrencies were attracted by the hope for decentralized systems. Spencer Bogart writes that the path to decentralization may be through centralization first. He cites problems with going do a decentralized model too early, as well as problems with becoming too centralized:

Either these platforms will offer strong assurances (“permissionless-ness”), in which case they will attract “sovereign-grade” attackers (and “platform-grade” censorship resistance will be insufficient) OR they will embrace censorship and permission-ing, in which case they will end up as less efficient varieties of today’s centralized platforms. Regardless, neither path appears sustainable.

The path forward: Highly decentralized base layer with increased centralization (and efficiency) on higher layers

He acknowledges a trend toward further centralization and it optimistic:

Instead, I’m most optimistic that highly decentralized networks will provide the robust foundation on top of which we can realize the efficiencies of centralization in higher layers — should it be desired. It’s a path that will likely take longer and be more difficult to build, but it might be the only viable route medium- to long-term.

Final Thoughts

A story from The Process Matters by Nick Maggiulli:

On the first day of ceramics class the teacher announced that the students would be split into two groups. One group would be graded on the quantity of the work they produced while the other group would be graded on the quality of the work they produced. The “quantity” group had to create as many clay pots as possible over the next few months while the “quality” group had to produce a single clay pot as best they could.

Months later as the students turned in their pots to be graded, the teacher came to a surprising realization — all of the highest quality pots were produced by students in the “quantity” group.

Regardless of regulatory action, crypto is here and it’s not going away. There’s a number of projects live, more in development, and even more that are just being conceived. Some projects will work, many won’t. The number of successes will increase as more projects are created. It’s early.

 

 

Weekly Cycle: A negative turn?

Stock Market Outlook 05.07.2018

Each week, I review the market using my own set of information sources to gauge the market. While I’d prefer to be long-term investors and check the markets less frequently, I believe my skills in selecting enduring businesses for long-term success are lacking those of great investors.

Instead, I use a trend following strategy with regular weekly checkups for proper diligence. A weekly outlook provides relief from overreacting on a day-to-day basis, while still allowing for relative short term moves.

Index Performance & Technical Indicators

stock market technical indicators and performance 05.07.2018

Performance
  • S&P 500 (SPY) up slightly over last week
  • Cannabis (MJ) up over 10% over last 30 days
  • Tech (QQQ) up 3.5% in past week and 5.6% in last 30 days. Similarly, cybersecurity (HACK) is up over 6% in last 30 days.
  • VIX is 50% down over last 3 months and 50% up over last year
Technical Indicators

Based on data and info from TradingView (Click  for 30% off a pro subscription)

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

  • Trading signals have turned overwhelmingly positive for wide, general indexes including SPY, VTI, VEA.
  • Tech index (QQQ) has improved significantly since last week
  • VIX has fallen further, with a negative score indicating bearish sentiment towards volatility
OldProf’s Risk Analysis

Each week OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf indicates a negative turn for short term trading conditions, while the long-term outlook remains unchanged.

 

Short-term trading conditions have turned negative.

The long-term fundamentals and outlook are little changed. The long-term technical health is back to strongly bullish.

This comes despite genuine positive surprises in earnings reports:

Corporate earnings continue to exceed expectations. This is especially interesting because of the unusual pattern this quarter. Expectations were not reduced significantly before the reports. These are true surprises. FactSet calls it the highest beat rate since they began compiling data in 2008.”

He also discusses how volatility effects trading vs investing, mentioning:

if stocks declined another 14%, would it tempt you to buy? If so, get your shopping list ready. The forward P/E on the S&P 500 has gone from 18.6 to 16.

Most people focus on price, not value, so these “sideways corrections” often go unnoticed.

StockTrader Recap

Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.

This week, Hanna writes that short-term conditions have further worsened, with long-term conditions remaining positive.

The indexes continue to mark time range bound at lower levels (with moderately high volatility) which should be a concern for bulls until it changes. Unlike consolidation after a move up, this is consolidation after a selloff which is not usually bullish.

Short term: A lot of consolidation at lower levels. That is a concern for bulls. More tests of the 200 day moving average – also not great.

Long term: Still very positive for the “buy and never sell” crowd.

Technical Update

Hacked (subscription-only) publishes a weekly technical update on U.S. indices with a weekly analysis of the S&P 500, NASDAQ, and DJIA, as well as a general market outlook. Other posts include trade recommendations (stocks, crypto & forex markets), worldwide-market updates, ICO analysis, and much more.

This week, Hacked’s outlook is “Neutral with a bullish bias”, which is more positive than last week’s “bearish bias.” There’s short and long term concern if SPX and QQQ break immediate term supports, yet they write “Further bullish momentum likely in the short-term.” More info on support levels in the weekly update.

Articles of note
The biggest companies focus on Customer Experience

Ben Thompson writes on the differences between Apple and Amazon, two companies closing in on $1 trillion valuations.

I mean it when I say these companies are the complete opposite: Apple sells products it makes; Amazon sells products made by anyone and everyone. Apple brags about focus; Amazon calls itself “The Everything Store.” Apple is a product company that struggles at services; Amazon is a services company that struggles at product. Apple has the highest margins and profits in the world; Amazon brags that other’s margin is their opportunity, and until recently, barely registered any profits at all. And, underlying all of this, Apple is an extreme example of a functional organization, and Amazon an extreme example of a divisional one.

Despite those differences, there is a commonality in a focus on customer experience.

Both, taken together, are a reminder that there is no one right organizational structure, product focus, or development cycle: what matters is that they all fit together, with a business model to match. That is where Apple and Amazon are arguable more alike than not: both are incredibly aligned in all aspects of their business. What makes them truly similar, though, is the end goal of that alignment: the customer experience.

More VC love for Canada

Like Brad Feld, venture capitalist (and prolific blogger) Fred Wilson is very positive on Canada.

More importantly, the talent pool in Canada is rich. Canadians are well educated and there are a number of very strong engineering schools in Canada. All of our portfolio companies that have engineering teams in Canada claim they get higher quality and retention in those teams than the ones they operate in the US.

So I’m bullish on Canada and have been since we started investing here almost ten years ago. And unlike the US, Canada has the wind behind it’s back in tech right now.

Tesla is not a tech-company

Scott Galloway writes that Tesla is an automaker and shouldn’t be considered a tech company.

Tesla has an amazing product, but has been mistaken by investors as an internet firm. Tesla lacks the frictionless networking effects of a Google or Facebook and doesn’t have the Hermés-like margins of an Apple. Yet, it’s trading at a valuation more reflective of a firm that can scale like a Facebook or generate the profits of an Apple.

His outlook for the stock isn’t good:

This means by the end of the year Tesla analysts will begin wringing their hands over liquidity concerns and dilution. This fear, coupled with rising interest rates, could spook bondholders and result in the equity being the tail of the whip as enterprise value drops.

Lumber Gains

Howard Lindzon mentioned “peak lumber” in a recent post. Here are more numbers to show the change from Bill McBride at Calculated Risk.

Here is another monthly update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs – and now prices are well above the bubble highs.

Final Thoughts

Reports like this make me question living the SF Bay Area.

Let’s state it plainly: The Bay Area must increase its total housing stock by 50 percent over the next 20 years to bring affordability down to a reasonable level.

That’s certainly not going to happen. Even if it did, it’s hard to imagine transit would expand to accommodate that number of people.

Weekly Crypto Outlook 05-01-2018

Crypto Market Update

My weekly update on the crypto market intends to look at the market from a macro perspective. With a majority of the crypto market cap concentrated on Bitcoin and a handful of other tokens, my focus is on the major coins. I check a standard set of information sources each week and include links to articles of interest.

Crypto Indexes

I follow the Bletchley Indexes, which CoinMetrics believes “offer the most thoughtful and consistent approach to index construction.”

Original “top X” indexes were launched in June 2017, followed by a market-wide index in December 2017 and sector specific indexes in February 2018. In total, there are 13 Bletchley indexes, with charts over various timetables available for each on their site.

Below is an alternate view of the performance based on the downloadable data made available by Bletchley. This view is intended to give a side-by-side snapshot of a handful of indexes.

Bletchley Cryptocurrency Index Performance 05-01-2018

Obserservations

  • Over the last month, the Application Index (consisting of the likes of Tron, OmiseGo, Binance, Icon, and two dozen others) has outpaced the market as a whole.
  • Platform Index has roughly kept the same pace as the market as a whole, while outpacing the top 10 index.
  • Currency sector weakest over last month
  • In general, “even” indexes (with an even allocation to all assets) have outperformed weighted indexes over most time periods, with the exception of nearly even performance for the total market over since index inception.

Global Crypto Charts

For a quick look at the global markets from another perspective, I find Coinlib.io provides simple charts with a lot of info, including Bitcoin marketshare, a visualization of the top 20 currencies by volume and market cap, and more.

Market Share of Top Cryptocurrencies

Market Share of Top 5 Cryptocurrencies - 05-01-18

Bitcoin’s market share has declined to ~38%, close to all-time lows. This continues a long-term declining trend, with new currencies such as EOS and BCH taking some of that market share.

Top 20 Cryptocurrencies by Market Share

The top 20 currencies (by market cap) currently make up roughly 85% of the total crypto market share.

TradingView Technical Indicators

Based on data and info from TradingView (Click  for 30% off a pro subscription)

Cryptocurrency Technical Indicators 05-02-2018

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

  • ETH has surged compared to BTC and USD over the last month. Technical indicators suggest the tide may be swinging to favor BTC in the short term.
  • USDT has outperformed USD by over 6% in the last year.

Google Trends

Google Trends Bitcoin + Crypto 05-01-2018

After a significant rise in Google searches for “bitcoin” in late 2017, there’s been a downward trend, which continues this week. I’m hesitant to keep tracking this, as my assumption is that there will be less searches as the public gains knowledge and no longer needs to search for the term. However, significant price action could still lead to search volume surges.

WooBull Charts

Bitcoin NVT Ratio 05-01-2018

NVT RatioThis long-term cycle tracking ratio has dipped in the past ewek, though still remains very high. This is worrisome as it suggests a significant drop may be on the horizon.

 

Bitcoin NVT Signal chart 04.16.2018

NVT Signal – This short-term signal continued its upward trend from the previous week. It has moved significantly over the last few weeks week and now sits near 130. In the original post introducing NVT Signal, 150 was indicated as an overbought signal.

Overall, there is potential for the upward trend to continue in short-term, though NVT Ratio suggests a downturn is looming.

 

CoinMetrics Charts

Bitcoin Kalvichkin NVT Signal May 01 2018

Kalvichkin’s NVT – Similar to NVT Signal, this suggests an upward trend is possible for both BTC and ETH in the short term.

Articles of Note

How reliable are ratios?

CoinMetrics collects a large amount of data on a number of coins. In the past, they’ve written about the challenges of collecting data for a number of different currencies, as well as problems with reliability of the data. Unsurprisingly, they understand the power and pitfalls that come with analyzing such data, particularly at a relatively nascent stage.

This week, they wrote on the potential problems of using ratios for valuations:

While users are more empowered than ever, uncertainty remains about a) whether ratio analysis is appropriate, b) how to interpret major ratios, and c) the shortcomings of such analyses.

NVT (network value to transaction volume) has become a popular way of measuring value, and I’ve included it as part of my own regular checks based on the writings of Chris Burniske, Willy Woo, and others. However, this may be a flawed method:

..ultimately, Bitcoin price isn’t a function of its transaction count! That’s only one small variable in the entire system – other important variables include average transaction value, fees, hashrate, accumulated trust, miner concentration, developer innovation and so on. 

Thus, the relationship between transaction count and the economic activity occurring on the network is an extremely tenuous one – we will cover this in a future post.

Read the full post for more info and check out their previous posts on the trouble with data collection.

 Making investment & ownership open to all

Nick Tomaino, founder & general partner of crypto investment fund 1Confirmation, writes on how crypto can make investment and ownership truly open to everyone and how regulation from the likes of the SEC is a threat:

This could have a negative effect of giving wealthy individuals and institutions ownership of the the blockchain ecosystem, leaving the masses out of wealth creation in the industry.

In the event all tokens are determined to be securities, he suggests a possible workaround:

Another possibility is that many more founders could go the Satoshi route of being completely anonymous upon launch to allow their tokens to maintain broad accessibility and also avoid any regulatory risk. If regulators come down aggressively and say that all tokens are securities, there is a strong chance that this happens.

 Blockchain to transform digital art?

While Cryptokitties may have been mocked in some circles, there are incredible new possibilities for digital artwork stemming from ERC-721 tokens. Each token is non-fungible, giving it a uniqueness from other coins. The public ledger aspect proves both authenticity and scarcity.

Here’s an 18 minute discussion on digital art with the founders of cryptokitties, hosted by Chris Burniske, via AVC.

The talk includes discussion of the human aspect of art and how it effects value (presumably higher) compared to AI-created artwork.

Blockchain as decision maker
Prolific blogger and economist Tyler Cowen opines on how blockchain could change the world in terms of governance:
To drive the point home, a blockchain is actually a form of governance and that is what makes it such a potentially radical idea. We’ve had families, and businesses, and governments, all as methods for making decisions.  Now we have blockchains. That could be huge, but is it going to take off?
Cowen outlines a scenario for this to happen and concludes:
That all said, I have more important news yet: I am not sure this cannot happen. In fact, I give it at least a 5 percent chance of taking place in some form, even if not exactly as I have outlined.
The big ICOs are alright

2017 saw some enormous ICOs based on little more than white papers. Jeremy Epstein checks in some of the biggest ICOs, nearly 1 year later.

He looks at the Brave browser, which incorporates the Basic Attention Token, Bancor, Gnosis, Golem, all of which he finds are doing well.

While the SEC and others have been clearing out the scam projects and regulators are cooling the market a bit (which is ultimately good), we are seeing more and more of the first wave of ICOs start to deliver.

This is the lull following the frenzy of November/December of 2017 when the infrastructure and apps are getting built.

Final Thought

“I am not saying here that there is no information in big data. There is plenty of information. The problem — the central issue — is that the needle comes in an increasingly larger haystack.”

Nasim Taleb wrote that in 2013, and it feels more true today. Where will be in another five years?

 

Weekly Cycle: Calm before rapids?

Stock Market Outlook 04.30.2018

Each week, I review the market using my own set of information sources to gauge the market. While I’d prefer to be long-term investors and check the markets less frequently, I believe my skills in selecting enduring businesses for long-term success are lacking those of great investors. Instead, I use a trend following strategy with periodic checkups. A weekly outlook gives us some relief from worrying about day-to-day fluctuations, while still allowing for relative short term opportunities and trends.

Index Technical Indicator & Recent Performance Summary

Based on data and info from TradingView (Click  for 30% off a pro subscription)

  • Scoring has been updated this week to give a more granular look at each index on my list. Scoring is now based on the net count of positive and negative technical indicators signals over three time horizons (daily, weekly and monthly)
  • Volatility index (VIX) showed most movement of any on list over last week, dropping by 2.5%.
  • VNQ (Vanguard REIT ETF) performed best, though still showing negative signals on weekly and monthly basis.
  • China Tech stocks (CQQQ) up nearly 30% over past year
  • Cybersecurity ETF (HACK) has performed well over last year and gets top score on technical signals
  • VEA (developed markets ETF) slightly behind in technical signal score and shows good results over last year
  • Overall, technical signals look great on a monthly basis, good on weekly basis, and show a lot more volatility and randomness on daily basis.

stock market outlook 04.30.3018

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

OldProf’s Risk Analysis

Each week OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf doesn’t see much change from last week, with things largely remaining neutral in the short-term and looking bullish in the long run.

 

Short-term trading conditions remain in the neutral zone.

The long-term fundamentals and outlook are little changed. The long-term technical health is back to strongly bullish.

Similar to another article linked to below, he mentioned an article in Morningstar on the overuse of  declaring  “bubbles” in markets:

Many bubbles are proclaimed, but few arrive. The word is not useful; rather than signal something extraordinary, it has come to mean “securities I don’t like because they strike me as being too expensive.”

StockTrader Recap

StockTrader publishes a weekly Market Recap full of charts and insight on overall market trends.

This week, StockTrader says conditions have weakened on a short term basis. Despite strong earnings, markets haven’t reacted overly bullish, which may be a cause for concern. Nothing has changed in the long-term.

Earnings season remains strong – as anticipated – and while individual companies have been rewarded, it has not led to a broad rally of any sort as much of this was forecast.

Short term: A lot of consolidation at lower levels. That is a concern for bulls.

Long term: Still very positive for the “buy and never sell” crowd.

Technical Update

Hacked (subscription-only) publishes a weekly technical update on U.S. indices with a weekly analysis of the S&P 500, NASDAQ, and DJIA, as well as a general market outlook. Other posts include trade recommendations (stocks, crypto & forex markets), worldwide-market updates, ICO analysis, and much more.

This week, Hacked’s outlook is “Neutral with a bearish bias.” There’s concern that a general downward trend is possible. More info on support levels in the weekly update.

 While breaks of the intermediate-term supports are likely, outlook is not outright bearish until confirmation is received.

Short- and long-term bearish if S&P 500 and NASDAQ break their respective intermediate-term supports.

S&P 500 and NASDAQ need to hold their intermediate-term supports and break above the orange resistances for outlook to shift to bullish, at least in the short-term.

Articles of notes
Stop calling bubbles

Morgan Housel wrote a great post on the aforementioned topic on the rising trend in calling bubbles.

Since there’s no definition, anyone can classify anything they want as a bubble and no one can prove them wrong. What began as a serious topic among economists has become a job-security loophole for pundits.

Alas, he gives his own take on the true quality of a bubble:

It’s only a bubble if return prospects don’t improve after prices fall.

Canada to rise as for tech entrepreneurs

Brad Feld makes the case that Canada has a great opportunity – and even advantage over the US to rise as a home to tech entrepreneurs and startups due to immigration-policies put into place under Trump.

From a Bloomberg article on the topic:

A big reason for the shortfall is that the year-old program has been constantly under assault since the election of President Donald Trump…

…No one has been granted a visa, and Homeland Security said last year that it’s working on a plan to kill the rule entirely

Feld, as a venture capitalist, writes about his first-hand knowledge:

The Toronto/Waterloo startup community is on fire. Many companies I’m involved in are exploring offices in Canada, especially Vancouver (for the Seattle folks) and Toronto (for the east coast folks) since it’s so difficult to get work visas in the US for employees. Other entrepreneurs from around the world are simply opting to start the company in Canada rather than the US because of all the uncertainty around visa status.

There is a window in time where Canada has a massive strategic geographic advantage over the US.

Lindzon on Solar and Consumer Product Goods

Howard Lindzon, always transparent with his investments, wrote positively on solar and consumer products goods this week.

I’m noet yet familiar with this company specifically, though are long $RUN and $SEDG. He credits Charlie Bilello for the tip on First Solar.

At Stocktoberfest, my friend Charlie got a ‘perfect 10’ score for his ‘chart battle’ take on being long First Solar.

Regarding CPG, he writes about how $PG has been getting beat up due to the rise of microbrands.

Amazon does not want to kill Procter & Gamble…at least quickly. There are a lot of advertising and promotional dollars Amazon would like to extract from them marketing inside/on Amazon.

Over the next 10 years, the Company can also buy 1,000 rising microbrands and go directly to the customers themselves.

The whole CPG (Consumer Product Goods) sector is going to see explosive deal action and volatility for the forseeable future

Value of judgement to rise as a complement to AI

Coming to us via a post at Kottke.org on AI is an article at McKinsey titled The economics of artificial intelligence. Guest editor Patrick Tanguay surmises, and quotes from the original article:

The very interesting twist is here, where he mentions the trope of “data is the new oil” but instead presents judgment as the other complement which will gain in value.

“So as the value of human prediction falls, the value of human judgment goes up because AI doesn’t do judgment—it can only make predictions and then hand them off to a human to use his or her judgment to determine what to do with those predictions.

Investing in cannabis as a healthcare play

Todd Harrison and Loren DeFalco, who run CB1 Capital, makes the case for cannabis as a healthcare investment in this video from Stocktoberfest.

DeFalco, who runs CB1 Capital with Harrison, took notice in Cannabis-based products because of a seizure he had. His treatments did not help, and in certain cases worsened his health. He found real treatment in cannabinoid wellness.

 

Final Thoughts

I’ve been reading Kevin Fedarko’s book The Emerald Mile about the fastest ride ever down the Colorado through the Grand Canyon. He provides fascinating details on the history of the Canyon, including how the Canyon was formed seemingly slowly over a long period, yet most change came in short bursts.

Up through the first half of the twentieth century, most tourists who contemplated the walls of the Grand Canyon assumed that this landscape was shaped slowly and gradually over tens of millions of years. This is true, but only in the broadest sense—which is to say, by stretching the process out on the scale of deep time. In the 1950s and 1960s, however, the geologic credo was further refined and scientists began to appreciate that the steady march of geomorphic change is punctuated by catastrophic bursts: brief moments of exceptionally brutal violence in which things happen very quickly indeed. In the canyon, these bursts take the form of debris flows.

Fedarko, Kevin. The Emerald Mile: The Epic Story of the Fastest Ride in History Through the Heart of the Grand Canyon (p. 118). Scribner. Kindle Edition.

Nature’s patterns have a way of playing out in other aspects of life, including markets and technology, and this seems a fitting reminder.

Stock Market Outlook 04.23.3018

Stock Market Outlook 04.23.2018

Our weekly checkup/outlook is meant to give me a macro-view of the market. We tend to mostly ignore news and politics when it comes to effects on the market as most is generally empty prognostication.

Instead, we look to a few reliable sources to get a read on the state of the market. A weekly outlook gives us some relief from day-to-day fluctuations, while still allowing for relative short term opportunities and trends.

Index Technical Indicator & Recent Performance Summary
  • Not much change from last week overall. Overall, we’ve seen a decline in volatility
  • This week, I’ve added changes over 5 different time periods.
  • Notably, CQQQ  (China tech) is down over 8% over the last month, while HACK (cybersecurity) is up over 5%.

 

weekly stock market technial indicators 04.23.2018

Data via TradingView.com (Click here to get 30% off a Pro subscription.)
Scores based on below. More weight given to 30D ratings than 1D ratings.
-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Gannon’s Risk Insight

Old Prof sees improvements in market conditions all around:

The gain for the week was about 0.5%, and the trading range was only about 2%.

Short-term trading conditions improved significantly this week.

The long-term fundamentals and outlook are little changed. The long-term technical health is back to strongly bullish.

He also makes a note about the importance of understanding sources of information:

Since most people pay little attention to the background of those claiming authority, they might not notice that economists specializing in the business cycle are reaching a different conclusion from most others. These observers, new to the topic and eager to make a mark, use reasoning like the following:

The age of the business cycle – known to be irrelevant.
Guessing when an indicator like the yield curve will change – the “forecasting the forecast” error.
Speculating about the impact of proposed policies – even though we don’t know whether they will be adopted or what the effects might be.

StockTrader Take

StockTrader believes market conditions remain similar to last week.

Short term: Essentially the same spots we were as last week on these 2 charts.

Long term: Still very positive for the “buy and never sell” crowd.

Technical Update

Brief summary from Hacked’s weekly technical update (subscription required):

  • Short-term bullish momentum is expected to subside after all indices broke below their respective short-term supports (white trendlines, which carried prices higher since the April lows).
  • Potential breaks of the intermediate-term supports for both S&P 500 and NASDAQ will carry significant bearish implications.

 

Other articles of notes

Netflix: The Future of Entertainment or House of Cards? by Aswath Damodaran: 

At the end of 2017, Netflix had more subscribers outside the US than in the US, and it is bringing its free spending ways and its views on content development to other parts of the world, perhaps bringing Bollywood and Hollywood closer, at least in terms of shared problems.

In summary, Netflix has built a business model of spending immense amounts on content, using that content to attract new subscribers, and then using those new subscribers as its pathway to market value. It is clear that investors have bought into the model, but the model is also one that burns through cash at alarming rates, with no smooth or near term escape hatch.

The value per share of $172.82 that I estimate for Netflix is well below the stock price of $275, as of April 14, 2018. My value reflects the story that I am telling about Netflix, as a company that is able to grow at double digit rates for the next decade, with high value added with new users, while bringing its content costs under control

Zillow, Aggregation, and Integration by Ben Thompson

the best outcome for Zillow was to be an aggregator but not an integrator: the company was completely removed from the purchase process.

More broadly — and this really gets at why Zillow is different — Aggregators that change industries (including Aggregator-like Amazon and Apple that deal with physical goods) integrate the customer relationship with however it is their industry generates revenue; Zillow, on the other hand, was completely divorced from the home selling-and-buying process.

 …
I can, though, see where Zillow is coming from: no one thinks the North American real estate market is the way it is because that is somehow optimal or good for consumers; the only folks that benefit from the status quo are real estate agents that continue to collect 6% of the purchase price even as their responsibilities, particularly in the case of the buying agent, run in the opposite direction of their incentives
Here, though, Zillow’s status as an almost-Aggregator looms large: we now have years’ worth of evidence that realtors will do what it takes to ensure their listings appear on Zillow, because Zillow controls end users. It very well may be the case that realtors will find themselves with no choice but to continue giving Zillow the money the company needs to disrupt their industry.
Our Take

Most of the recent tradewars talk has subsided and the markets seem to be faring better with volatility subsiding.

We’re bullishly optimistic in both the short and long term. No new positions recently and would consider adding something if the right opportunity came along, with no concern for a general bearish market that could harm any stock.

 

Crypto Market Outlook 04.16.2018

Crypto Market Update

Our weekly take on the crypto market. We primarily look at BTC and ETH, as it’s rare to see altcoins outperforming both. Still, we track the crypto market as a whole, looking for new opportunities and we hold a handful of altcoins.

TradingView Technical Indicators

BTCUSD – Buy signals on 1D and 30D, while neutral on 7D.
ETHUSD – Signals remain bearish with sell signals on 1D, 7D, and 30D basis

WooBull Charts

NVT RatioThis long-term cycle tracking ratio is very high, which is worrisom as it typically signifies a significant drop may be coming.

 

Bitcoin NVT Signal chart 04.16.2018

NVT Signal – Shorter-term signal has moved upward significantly over the last week and sits around 100. In the original post introducing NVT Signal, 150 was indicated as an overbought signal.

Overall, there is potential for the upward trend to continue in short-term, though NVT Ratio suggests a downturn is looming.

Google Trends

No significant changes, though a small bump this past week

CoinMetrics

kalvichkin nvt - btc

Kalvichkin’s NVT – Similar to NVT Signal, this indicates BTC is trending upward in the short-run. ETHUSD shows very similar results.

kalvichkin nvt - eth

Articles of Note

Blockchain is not only crappy technology but a bad vision for the future:

There is no single person in existence who had a problem they wanted to solve, discovered that an available blockchain solution was the best way to solve it, and therefore became a blockchain enthusiast.

Many good points in this post, though it seems to overlook that applying blockchain to existing problems may not be the best utilization. Instead, there are new possibilities, such as those seen in utility tokens.

Cryptoassets: Flow & Reflexivity :

The experience of the last six months should serve as a lesson for cryptoasset investors about the sensitivities of the current crypto market structure, and the importance of being cognizant of flows and their second order effects. As for where we currently stand, concentrated tax selling is likely nearing completion, and reflexivity has driven sentiment to bearish extremes.⁴ Now we must wait and see how far the reverberations of reflexivity take crypto, before the market returns to a focus on fundamentals-driven growth

Our Take

We’re looking at BTC and crypto in general as a short-term opportunity. It still seems like a risky time, as NVT Ratio and NVT Signal imply a further correction is due.

Stock Market Outlook 04.16.2018

Stock Market Outlook 04.16.2018

Our weekly checkup/outlook is meant to give me a macro-view of the market. We tend to mostly ignore political talk and the potential effects on markets. Too much of it is empty prognostication. There are likely some ties, but typically too difficult to correlate market movement to political actions.

Instead, we look at what is happening on a weekly basis, with much attention given to current risk/reward ratios.

TradingView Technical Signals

Most index signals have returned to positive scores, with the exception of BOND.

Financials (VFH) are still somewhat weak, along with China Tech (CQQQ) and the BRIC index BKF.

Notably, VIX has dropped considerably, especially on a weekly basis.

market update trading view signals

Data via TradingView.com (Click here to get 30% off a Pro subscription.)
Scored as follows:
-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Gannon’s Risk Insight

Old Prof believes little has changed from last week, with poor short term conditions. Long-term risk has risen over the last 2 weeks.

Short-term trading conditions remained poor this week. In mildly bearish conditions our trading approaches can still be profitable, but that might not be true for everyone. We continue to monitor the technical health measures on a daily basis. If this indicator goes to fullish bearish, we liquidate trading (not investment) positions. We are not quite at that point, but I have rounded the result to “5.” This is not a forecast that the market will decline. It indicates increased difficulty in trading profitably.

The long-term fundamentals and outlook are little changed. Based upon historical data for this indicator, I have increased the 9-month recession probability to the 18% range. I am monitoring, but not yet especially worried. The long-term technical health is 1.5, but I rounded it up.

StockTrader Take

StockTrader says conditions have improved and there’s a need to remain cautious.

Short term: Things look better than a week ago but some more work is needed over the intermediate term. The S&P 500 DID hold that 200 day moving average despite testing it quite a few times. That said breaking over 2800 would be a new “higher high” and would signal and all clear – that is quite a ways away. Also, breaking over the trendline connecting the 2 recent highs of January and March would be a needed first step.

Also of note on earnings season, which is expected to be strong:

Earnings season will begin in earnest with the next few weeks bringing most of the big hitters. Earnings season is expected to very strong – it will be interesting to see how companies guide up the rest of the year due to the tax cuts.

My take is that enterprise software companies will report especially strong earnings, gaining both from direct tax cuts, as well as other companies spending gains from tax cuts on implementing and improving software.

Other articles of notes

Sentiment Now Broadly Bearish:

In prior posts highlighting investor sentiment data it has been noted that sentiment data is more actionable at market bottoms than at market tops.

With much of the sentiment now decidedly bearish, just possibly the market is nearing a bottom.

Update: Predicting the next recession:

[CR April 2018 Update: This was written in 2013 – and my prediction for no “recession for a few years” was correct. This still seems correct today, so no recession in the immediate future (not in 2018). ]

Our Take

Market is volatile yet economy remains strong. Some concern over war but most political talk of late has been of little substance. Tradewars appear overblown, while tax law changes seem undervalued in many companies. Enterprise software companies remain a favorite. If things look week after earnings season, will need to re-evaluate.

 

Market Outlook April 02, 2018

Technical Indicators

All of the indexes we follow have turned to bearish signals on daily timeframes. HACK remains the only index with a ‘buy’ rating on weekly timeframes.

With the exception of BOND, all indexes we follow still have buy ratings on monthly timeframes.

 

-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Score gives 3x weight to 30-day indicators and 2x weight to 7-day indicators.

What others are saying

1 . Old Prof cautions about short-term trading, though believes long-term fundamentals remain positive.

Short-term trading conditions worsened this week. In mildly bearish conditions our trading approaches can still be profitable, but that might not be true for everyone. We continue to monitor the technical health measures on a daily basis. If this indicator goes to fullish bearish, we liquidate trading positions. This is not a forecast that the market will decline. It indicates increased difficulty in trading profitably.

The long-term fundamentals and outlook are little changed. The FOMC decision flattened the yield curve a bit, and that is one component of the C-Score. Based upon historical data for this indicator, I have increased the 9-month recession probability to the 18% range. I am monitoring, but not yet especially worried. Please see James Picerno below.

He also warns that Canadian marijuana stocks may be overvalued:

Pot stocks, according to a cover story in Barron’s. Bill Alpert analyzes the Canadian stocks, comparing valuations to other markets like gold and alcohol. He writes:

As they often do, investors have celebrated this emerging business early by embracing Canadian companies that claim a cannabis connection. Traveling in Canada, cabbies, bankers, and even border guards will tell you their favorites in a bubble that has floated Canadian cannabis stocks to a collective stock-market value above $30 billion. That’s already about half the market capitalization of Canada’s gold mining industry.

 

 

2. At StockTrader, Mark Hanna writes about the potential huge surge in corporate earnings:

2018 will be the year the massive corporate tax cuts boost earnings.

According to FactSet, earnings for companies in the S&P 500 are expected to grow 17.3% in the first quarter. Not only would that represent the fastest pace of profit growth since the first quarter of 2011, but expectations have been swiftly ratcheted up over the past few months. At the end of December, analysts were expecting a growth rate of 11.4%. Much of that increase was due to the recently passed tax-reform bill.

Stocks

  • Solar stocks like SEDG and RUN are holding up well in a volatile market
  • OSTK is down over 40% over the 30 days
  • BSBR (banco santander) has been added to our watchlist after reaching new all time highs with an attractive P/E ratio of ~16. More research to be conducted.

Outlook

Remaining mostly invested and looking into income producing assets and real estate projects to hedge should the market continue showing signs of weakness.