For bull traders, life is easy as I will show again in the next few graphs. Our random walk tells us tells us when to step in, then get out. Two options to get out:
Partially on first price objective and then wait for the stop
In case of time out (the observation period), try to exit on multiples of risks (the dotted lines)
Case in point with SOX. Price objective is recalculated each day, but the flat sections above major troughs are the ones we target. SOX is above the green belt, even making new highs. Just hold for now.
Tesla: you should start raising an eyebrow or two! See that divergence with MACD? Worth securing some profits…
Bitcoin is back up again after the January consolidation. Getting above the green belt was a good buy signal. It has already passed through the first objective (not shown) and it adheres to the second dotted line. Your stop should be bottom of the green belt for longer term, and top of belt for short term trading. Next objectives are 53700$ and 58200$. 50k$ might be a short term psychological blocking point but random walk says not to care!
We talked about the short squeezes, which if coordinated, can lead to strong bull markets. This is usually the case when prices reach an area around the one year high, which is seen as resistance, and so many are shorting to benefit from a price reversal. This works from time to time, but the back testing does not validate it on markets, all stocks, … so be careful!
Coming back to our random market model, it is easier to pick up a trend when it starts, and drive it until it wears out. That is what I am doing with Bitcoin and Etherum. Bitcoin has walked back from its recent top to the random walk path (RWP) and is ready to pick up again. MACD is still largely positive, no reason to exit for now. A partial profit was of course welcome in January.
Etherum is even stronger. The RWP has not even pointed south one day! I don’t know if it will go to 100k$, but 1800$ is surely next target in the short term!
Tezos might be a candidate for near future. MACD is in positive area after a divergence, so just monitor!
There are two crypto-like stocks (in terms of performance). One is of course Tesla and the other one is …. surprise…. Ford!
In spite of never ending pandemic, a looming economic crisis, everything is bull, except maybe dollar and gold. Strange, isn’t it?
Anaximander of Miletus, a Greek philosopher who lived in the 500s B.C.E. speculated that humans must have descended from some other type of creature, most likely fishes. This idea became later a scientific theory when Darwin wrote about it. But it still is a theory, because these days, no new species arise on earth, maybe man will change into superhuman with exoskeleton and additional processing power, but still is a man, form fit and and function wise! A counter theory is that at some point in time, a disruption occurred, allowing for instance more radiation from the Sun or stars on brain cells, that allow the monkey to become a different specie: the man! Don’t tell anyone I told you about this one ;-))
When a company changes so that it is not the same as before, because it has been eaten by a bigger one, or they invented a disruptive technology, it is not usually a smooth process. The new company may not have children (or clones) on its own because the market timing was missed. Or it may thrive in unusual manner and explode, what we call bubbles. This is exactly what we can observe and measure on our charts. Well, seems I have demonstrated life on earth is actually the output of a random process!
If you want to make money with trading (I did not say investing which is an other subject), you need board a ship that is willing to go northern direction. A disruptive technology is the right vector to use. Because, when something has the potential to disrupt, then it is attracting attention of big money, and you need to follow this track. If you are sticking to old business, then your gains may not outweigh your losses.
While I am it, instead of complaining of inefficiency of government in managing virus crisis, take time to think about disrupting something in a gently way. Become expert in one domain, then explode it with new concept, and sell you concept to make big money!
Now let’s look at the market and their disruption potential!
I will explain in future post about the usage of pitchforks. When you master many trading tools, you should change from time to time to avoid analysis being a boring task. So S&P500 escaped from a down trending pitchfork, thereby generating a buy signal. The MACD at the bottom being in positive area, and price being above moving averages, this was a good signal to check whether index was waking up from the horizontal move. Which it did! The slope looks good, we can stick with the market. Careful about any divergence with MACD… nothing to fear for now!
I am more concerned with Nasdaq. I is right on the 3-months objective and MACD is now lower than beginning of September. This is a divergence! Should you hold major index contributors, like Apple or Facebook, would be good to watch closer to market behavior and secure some gains!
Bitcoin is still pleasantly flying in the 10R area, 10R means it is 10 times the Risk I took when I entered beginning of October (stop under yellow zone). I have taken partial gain and will come back to it later. As long as MACD is positive, I am keeping a small line so I won’t miss out the beginning of next rally (the famous FOMO) and then I will add more to the line when the rally is confirmed!
Telsa has landed (pun intended after Starship issue!) me a cool 40% of gains without leverage. Same divergence as Nasdaq. I will wait lower!
That’s it! Until next time, trade disruptively but safely!
Sideways markets are the ones that hurt most traders because trend indicators fail miserably, stop are too far or too close, and those playing with highs and lows are punished when prices go out of the horizontal channel. As I warned in last post, those wanting to short Tesla had absolutely no chance going downwards. So it went up!
Bitcoin has also continued its rally towards new highs, the 2020 performance is now close to 200%! With such performance, you can trade only a small line of BTC and keep your money in safe harbor!
Speaking of safe harbor, Gold is now on the lips of many value investors because of dollars, euros, … printed by tons. Gold has been going down recently, stopped 8 steps from the stop, then went through… If it stops in 3 steps (1680$), we will have a nice hidden divergence, which will likely push Gold towards new highs!
Indexes like Nasdaq are still moving sideways. Volatility is pretty much like Tesla, quite high. So the northbound exit option must be privileged.
Last but not least, cannabis is waking up at last. Look at that beautiful Aurora Cannabis chart:
That’s it! I will start a new series of posts for beginners or almost. We will start by taking a fresh look at Andrew’s pitchfork. Until next time, trade safely!
Crazy times since last report. Look at that beautiful Bitcoin chart!
If you read this blog quite often, you know I entered at about 6000$, then again at 9500$ and again at 11000$ in October. The profit is substantial for the year, why bother trading stocks and all the related work about finding when are next quarterly results, announcement, or FDA validation for biotechs, … And of course, all stock market indexes are beaten! Same is true with many other cryptos….
Those of you interested in Tesla, I wrote that I would short Tesla at some point when the conditions are there. True enough Ferrari has fared better than Tesla recently but not a chance to short TSLA. Why not? Because the volatility is too high, it works like air balloon and protects from the crash. The volatility must be small or even tiny, so it can go up in a downfall. Volatility on Tesla is still very high (30%+, personal scale) so waiting mode!
The MACD has actually taken a down slope, but the green average is up, kind of hidden divergence. So Tesla stays up in the air. It has even gone above the down-sloping last reaction line and may still go up now, along with billions of dollars printed by the Fed.
Nasdaq is also floating mid-air, not knowing where to go. I would not be surprise if the index blows off the 12500 level and then continues up into next year (the famous short squeeze!)
Amid sad jobless figures and coronavirus new travel restrictions in Europe, markets may be in a strange mood but money flows by billions in stock market because bonds have ridiculous or negative yield. Interesting? No. This is noise. All this does not explain why you, as an investor, will pull the trigger to buy Apple or Tesla stock. Those so-called correlations between news and market are complete non sense!
Let’s go back to our sound mathematics based trading!
S&P after crossing reaction line in now back up, see how good those reactions lines to find bottoms (which you can’t play of course!). As explained in yesterday’s post, new 3-months objective is 3672, we are already 6-steps from the bottom, which is quite good. Indeed the tail winds may push prices horizontal for a few days, but next reaction line is far away, do not expect a reversal in the short term. No need to say you need a stop anyway, this is trading, not betting on the wind direction!
Tesla, after hitting twice the reaction, has gone through. Next one is very close, so better be careful!
Bitcoin: does anyone care about Bitcoin anymore? Maybe you should! Next objective is 13230$, which means the gain for 2020 could be close to 100%, compared to current 10% on S&P500, before the US election…
Sorry it has been a while since last post, I have been busy with the Cozy Dragon Research team about their discoveries. Digging in the data, and starting from the fact that Gaussian distribution is a scam for stock market data, many doors keep opening in the way we analyze this data. Exponential distributions are key of course, but even then as we focus on longer time analysis, we find that data is spread is in many populations, themselves are within an exponential distribution! There is therefore a fractal statistical Laplace structure. We can identify clearly what some call the smart money, then the money of everybody, and it all reflects the opinion diversity…
Let’s stop on that and come back to real market, where our goal is of course to make as much money as possible!
Unlike those waiting for Fed money, we want to profit from market meanders. The proximity of US elections, and Trump having caught COVID-19, and … Nothing gives us better indication that mathematics.
We left S&P500 between the last 2 reactions lines, and I told you it was mirroring the end of summer 2019. The move was much more violent this time but as you can see it ended exactly at next reaction line. The weather should be more quiet from now. The trend is of course still very bullish.
Nasdaq is same configuration. Those would wanted a strong correction will need to wait some more!
Our friend Tesla is blocked by a reaction line but bulls are still pushing to go through.
We can not anticipate of course what the many investors have in mind. Maybe Trump will recover from the virus and win in a landslide, in which case, the bull market will continue and take a deep breath after November. Maybe Biden makes it to the White House and many will go short on the market. A down wave is surely to be expected, but the exact timing it is starting is the biggest question. Not just now…
Tesla may have gone up pushed by a whale and bulls have bought hysterically the stock. But it was stopped… by a reaction line! Just kidding of course, but it is worth noting that the action-reaction theory works whatever market conditions to predict somehow where market hiccups or changes direction!
Market fundamentalists estimate the real value of Tesla to be around 240$, meaning it was somehow well priced beginning of July before acceleration. Shorting Tesla is an interesting bet but be careful, trend is for now up and very strong, volatility needs to decrease first so it can go up for a downtrend!
No need to say I am very bullish on Tesla in the long term but they need to produce and sell more! Back to basics!
Ferrari on the opposite did not benefit too much from recent rally, a small 50% gain! Because of small volumes and many gaps, I am working on the 3-days graph! Stocks still bumps on random walk lines and Ferrari was also stopped by a reaction line. Ferrari is a totally different business: you order one now for 100k$+ and you will be delivered in 2022! The correction is likely an opportunity to get extra stocks if you can not afford the car itself (even second hand units can be more expensive than the brand new ones!)
I will follow this idea in coming weeks: short Tesla and get more Ferrari stocks with the gains! Careful! Market needs to be re-assessed with each new data and I may totally change my mind. Market is not ready for now.