Weekly Cycle: Market Update 05.29.2018

You can’t do the same things that other people are doing and expect to outperform them. When you do what everyone else does, you’re going to get the same results everyone else gets. But it’s not enough to be different — you also need to be correct

Second-Order Thinking: What Smart People Use to Outperform – Farnam Street Blog

Market Outlook Update for May 29, 2018

Each week, we review the stock market using a specific set of information sources in order to cut through the noise generated by media publishing attention grabbing headlines. Weekly updates give e the opportunity to play trends while not overreacting on a daily basis.

Market Performance

Performance of a handful of macro indexes, as well as index and ETFs on specific sectors of particular interest. 

Observations:

○ Volatility [VIX] has risen considerably in the last week
○ SPY and VTI have dropped slightly over last week, remain positive for last 30 days
○ Financials [VFH] and [MJ] performed worse over past week
○ Homebuilders [XHB] performed strongly over past week

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). 

Observations:

○ Indicators for SPY and VTI have dropped and remain positive over longer term
○ QQQ, HACK signals remain very strong
○ Signals for international markets [VEA, VEU] turned significantly worse
○ VIX has turned significantly more positive, which indicates a signal towards increased volatility

OldProf’s Risk Analysis

Each week, at the Dash of Insight blog, 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 writes that Short-term trading conditions improved dramatically.”

He also writes that this week is a very busy week for economic news this week and believes many will be wondering it it’s still worth listening to. Our typical preference is to ignore headlines about what might happen and instead react to what we see happening.

There is an avalanche of economic news in the shortened week ahead. While this will provide plenty to talk about, I expect many to be asking:

Should investors basically ignore the daily geopolitical news?

The Pundit-in-Chief commented that the market is getting it wrong every day, mistakenly trying to trade every swing in the news flow.

Art Cashin observed that traders seem to be learning a pattern. Aggressive statements by world leaders, including the Trump Administration, followed by more moderate policies. Art sees this understanding as part of the recent reduction in volatility.

StockTrader Recap

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

This week, Mark writes that it was “The second week in a row of low volatility which is usually advantage bulls” and goes out to point out positive signs in the Nasdaq.

“Short term: The S&P 500 is consolidating while the NASDAQ tipped its head over this trend line connecting highs of the year.

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

Technical Analysis 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 has not yet posted an update.

Articles of note

“Real Bear Markets, “The Big One” we hear so much about today is what produces excruciating, prolonged equity market declines. They have recessions attached. There is no sign of that I can find today. None.”

If You Want To See Bears, Go To The Zoo
Lloyd Clucas Seeking Alpha

“In my view we are experiencing a global economic “dead-cat bounce”. That worked for ’17 and should suffice for 2018. I hope it will be longer. But hope is not an investment strategy. Earnings have turned up and are accelerating again. How long? I have no idea. But you take what is there. [If you don’t, you can have tea with John Hussman or Jeremy Grantham.] And earnings are looking good for 2018. The tax cut for corporations is a big deal for 2018. It pushed up central value for many companies and hiked this year’s earnings estimate growth materially.”
1

“Now, with public and private funding flowing into Chinese start-ups, entrepreneurship has become an appealing alternative for a generation disillusioned with the conveyor-belt career paths of their forebears.”

How China’s Tech Revolution Threatens Silicon Valley
Alec Ash The Atlantic

“The tech revolution in China is ubiquitous in urban life. I use the messaging app WeChat for work calls and vacation bookings. I pay for a cup of coffee or a ride in a car with a scanned QR code on my phone. I go to work at a rented desk in an “experimental life space” called 5Lmeet, built in an old soy-sauce factory, which offers pop-up cuisine, a cashless, staffless convenience store, and an office space, the entrance gate to which uses face-recognition software to let me in. Every time I come out of a subway stop in Beijing, I have to fight through a mass of the cheap, rentable bicycles that have transformed transportation in the city. Dai Wei, the CEO of the leading bike-rental firm, Ofo—reportedly valued at $2 billion—is 27 years old.”
2

“Amazon had lowered prices at Whole Foods by an average of 5% over the last year. ”

Shopping at Whole Foods is finally a good deal—if you have Amazon Prime
Alison Griswold Quartz

“On May 16, Amazon announced that Prime members could get an extra 10% off sale items by downloading the Whole Foods mobile app, signing in with their Amazon account, and scanning a code at checkout. The “member deals” are available now at Whole Foods in Florida and will begin rolling out to the rest of the US this summer, Amazon said”
3

From 4 years ago and still a great read on common knowledge and where to look for big challenges

When Does the Story Break?
Epsilon Theory

” I believe that public markets today are essentially hollow, as what passes for volume and liquidity is primarily machines talking to other machines for portfolio “positioning” or ephemeral arbitrage rather than the human expression of a desire to own a fractional ownership share of a real-world company. I believe that today’s public market price levels primarily reflect the greatest monetary policy accommodation in human history rather than the real-world prospects of real-world companies. I believe that the political risks to both capital market structure and international trade (which are the twin engines of global growth, period, end of story) have not been this great since the 1930’s. Simply put, I believe we are being played like fiddles. That does NOT mean, however, that I think anything has to change next week … or next month … or next year … or next decade. The human animal is a social animal in the biological sense, and as such we are cognitively evolved to maintain our beliefs and behaviors far beyond what is “true” in an objective sense. This is, in fact, the core argument of Epsilon Theory, that there is no such thing as Truth with a capital T when it comes to the institutions and the social organizations that we create. There’s nothing more “natural” about our market behaviors than there is around, say, our fashion behaviors … the way we wear our clothes or the way we cut our hair. For 150 years everyone knew that everyone knew that gentlemen wore wigs. This was the dominant common knowledge of its day in the fashion world, absolutely no different in any way, shape or form than the dominant common knowledge of today in the investing world … everyone knows that everyone knows that it’s central bank policy that determines market outcomes. And this market common knowledge could last for 150 years, too.”
4

“This is ultimately the most important distinction between platforms and aggregators: platforms are powerful because they facilitate a relationship between 3rd-party suppliers and end users; aggregators, on the other hand, intermediate and control it.”

The Bill Gates Line

Ben Thompson Stratechery

“Third — and this is the point of this article — what Yelp seems to want will only serve to make Google stronger”

“it is suggestive of further growth in the year ahead and this should be positive for stocks, all else being equal.”

Only The Good News
David Templeton, CFA The Blog of HORAN Capital Advisors

“The purpose of this post is to highlight a number of the positive data points that one would expect to see in a strong economic environment like we are in now”

Our Take

Volatility has increased today after a few weeks of relatively low volatility. It’s still best to ignore more headlines as there appears to be more headlines than real changes.

We’re remaining mostly invested and believe there are short term opportunities. Risk has increase greatly from a year ago though no obvious reason for a general market downturn on the horizon, historically speaking.

Crypto Update: Invaluable

If your customers had to stop using your product or service tomorrow, how much would they miss it?

From How cold is the turkey? by Seth Godin

Crypto Market Update

Our 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 performance 05.21.2018

Obserservations

  • Bletchley 10 and Total Market down over slightly vs BTC and 5-10% vs USD
  • Both Bletchley 10 and Total Market index remain up over ~20% over last 30 days
  • Even Indexes performed worse than weighted indexes over last 7 and remain better over longer periods
  • Platform, Application, and Currency indexes all down against USD and BTC over last week
  • Currency down nearly 10% vs USD over last 7 days and over 22% in last 3 months

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: $379.72 billion

total crypto market cap 05.18.2018

Market Share of Top Cryptocurrencies

Market Share of Top 5 Cryptocurrencies - 05-21-18 Bitcoin’s market share remains at~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.

Market share of top 20 cryptocurrencies

Market Share of Top 20 Cryptocurrencies - 05-21-18

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 Performace 05.21.2018

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 and ETH have turned much more negative vs USD since last week
  • ETH is looking worse vs BTC than the last two weeks

CRYPTO PERFORMANCE

Crypto Performace 05.21.2018

  • BTC down over 6% vs USD over last week and nearly 30% over last 3 months
  • ETH has outperformed BTC significantly in last year

Google Trends

Google Trends Bitcoin + Crypto 05-21-2018.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

Google Trends Bitcoin + Crypto 05-21-2018.png

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.

Bitcoin NVT Signal Chart 05.21.2018

NVT Signal -This short-term signal has moved down slightly over the past week from 126 to 122. 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.

 

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 05.21.2018

Kalvichkin’s NVT – Similar to NVT Signal, Kalvichikin’s NVT has remained mostly flat compared to last week. ETH has moved higher.

Articles of Note

Crypto’s Big Lie

Parker Thompson writes that crypto does not make venture capital style investing available to anyone, as is often stated.

Setting aside the fact that investing is not independent of wealth (you need money to invest), these markets are opaque, controlled by insiders, and by the time “anyone in the world” has the opportunity to invest, the price is often an order of magnitude or three higher than the price paid by venture capitalists (first in line), and significantly higher than what accredited investors paid in pre-sales (second in line).

And you hear it in private conversations with crypto teams as well. To paraphrase one statement (but not much), “we are letting value-add VCs buy equity in the company, and pushing the dumb money that got rich on bitcoin into the public sale.” When money is abundant, who it is attached to matters even more, and money has never been as abundant in traditional venture as it is in crypto.

Why Crypto’s A Growing Threat To FAMGA (a.k.a. Facebook, Apple, Microsoft, Google and Amazon)

Lou Kerner believes crypto is a real threat to the ever-growing massive tech companies.

The point of my post last year, was that FAMGA’s increasing domination has profound implications, including the stifling of innovation that results from the MAJORITY of value creation going to just five companies.

A year ago I didn’t see any emerging technology that could impede the FAMGA’s increasing dominance. But I did state that “History has taught us that nothing is constant but change”, as noted by the great graph below showing the market cap market share of the top 100 tech companies over time:

Consensus & Token Summit Recap

Last week was crypto week in New York with mulitiple conferences and events. Patrick Mayr  from Token Economy provided a good summary, including a bit about the revenue from ticket sales alone.

Consensus (May 14–16, 2018)

Raking in approximately $17million in ticket sales alone, Consensus provided a glimpse into lucrative ripple effects of the technology: event planning with unprecedented top line.

An analysis of batching in Bitcoin
 As a way to avoid ridiculous fees, batching has been implemented to reduce transaction volume. CoinMetrics looked at the result and found impressive results.

Today, around 12% of all transactions on the Bitcoin network are batched, and these account for about 40% of all outputs and between 30–60% of all transactional value. The fact such that a small set of transactions carries so much economic weight makes us hopeful that Bitcoin still has a lot of room to scale on the base layer, especially if usage trends continue.

Introduction TxTenna: Decentralizing the Last Mile in BitCoin

In Token Economy #49: Crypto Extravaganza, a new project is mentioned which allows offline bitcoin transactions. This could be huge for making BTC viable for a many more people.

Bitcoin is unstoppable, but only to a point: its single point of failure is actually physical, as the network still relies on ISPs for internet connectivity. These are centralized communication networks with a history of censorship (imposed by governments, see the whole net neutrality situation), attacks or fragility (natural or manmade disasters).

So the folks at Samurai Wallet, using the GoTenna SDK, a toolkit provided for free by GoTenna (the makers of an off-grid mobile mesh networking platform) have developed the TxTenna app. The app can broadcast offline bitcoin transactions off-grid via goTenna Mesh devices, effectively enabling an alternative physical communication layer for bitcoin. This is how it works:

Using the Samourai Wallet app the user creates a standard bitcoin transaction and signs it. This is possible while offline and without wifi or mobile access.The Samourai Wallet app then passes the offline transaction to the TxTenna App and TxTenna broadcasts it to nearby mesh nodes via a paired goTenna mesh device. Other goTenna devices in the area relay the transaction until an internet connected goTenna node also running TxTenna receives it and forwards it to the Bitcoin network.”

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.

Apple is well-positioned, less flashy

Apple isn’t the same company it once was, and that’s ok as they seem aware of their position as market leader, rather than the upstart they once were. While they may not be overwhelming critics and consumers with new devices, they are making appropriate moves for a company in their “middle age.”

This is by no means a condemnation of Apple. Every single move I’ve described above is justified by two circumstances in particular.

First, as a general rule, challengers pursue interoperability while incumbents strive for incompatibility. This is Strategy 101: seek to fight battles where you have the greatest advantage. When Apple was making the iPod, it’s advantage was a superior device; making that device interoperable with Windows let Apple fight the portable music player battle on its terms. Today, though, Apple already has dominant market share: better to make its devices exclusive to its ecosystem, preventing rivals from bringing their own advantage (superior voice assistants, in the case of Alexa and Google Assistant) to bear.

Secondly, the high-end smartphone market — that is, the iPhone market — is saturated. Apple still has the advantage in loyalty, which means switchers will on balance move from Android to iPhone, but that advantage is counter-weighted by clearly elongating upgrade cycles. To that end, if Apple wants growth, its existing customer base is by far the most obvious place to turn.

In short, it just doesn’t make much sense to act like a young person with nothing to lose: one gets older, one’s circumstances and priorities change, and one settles down. It’s all rather inevitable.

via Apple’s Middle Age at Stratechery by Ben Thompson