This ‘Market Snapshot’ is going to be an interesting one, as it is sharing some of my thoughts inspired by the markets and my trading rather than market action.
The first thing I’d like to talk about is the correlation between Bitcoin, Altcoins, Gold, Stocks and the USD, as it is definitely a topic many people are discussing and it’s a heated one.
Since the March crash we have seen most assets get much more correlated than they were before, and the main reason is that the USD has become more volatile and it’s importance to markets has become very clear. Due to the fact that the biggest markets in the world are the US ones, most debt is in USD and most assets are traded vs the USD, it is normal for assets to be correlated to an extent just because of that. At the same time, many retail traders are looking at the same things, along with institutions which aren’t focused on crypto. Many of them actually bought the dip this time, and now have a bigger influence in the crypto markets than ever before.
Another thing is that the US stocks are going parabolic, especially the big tech names, while the VIX is near 30. There is a lot of uncertainty in the world right now and one market has gained most of the attention. At the same time, crypto is still flying under the radar and the crypto total marketcap is 50% below its ATHs nearly 3 years later. Eventually things are going to change as this market is maturing and the technology is progressing.
Bitcoin usually starts moving very quickly when something changes in the global picture. We saw that both in Dec 2017 and Nov 2018, March 2020 and also during this correction where Bitcoin started dropping before stocks and bottomed before them. Don’t forget that crypto is still the wild west and a 24/7 market.
In my first ‘Market Snapshot’ I got many of the targets for closing shorts and going long correct (SPX 3300, NDX 10900-11100 & Bitcoin 9500-9800), but then I became overly bearish. On my ‘Weekly Open’ analysis although, Bitcoin and altcoins had dropped substantially, I felt they had more to drop as traditional markets fell further. So why did I get it wrong, what were the signals that I was wrong and what to do next time?
A. Always focus on the chart you are analysing for entries and exits. If an entry is really good, don’t leave it on the table because you think the xyz asset could do something different. Crypto is a different beast and respects TA incredibly well, but also has its own intricacies. For example the diagonal held nicely and the price never even closed below 10k or the 128 DMA. On top of that, the BTCUSD & ALTBTC correlation had started breaking since Sunday. Alts where also not dropping much despite BTC trying to go lower.
B. Always look at both BTC and USD charts for alts. Nowadays USD charts are more important as most trading is going on in USD/USDT pairs. Even though alts didn’t seem ‘oversold’ enough in BTC terms, they certainly were in USD terms.
C. When markets get volatile stick to your initial plan, because during crazy corrections like this one – fastest 10% drop in 3 days in Nasdaq’s history – you could be your own worst enemy by overthinking or, even worse, overtrading.
D. To me it was and still is very clear that we are in a bull market both in Crypto and stocks. NDX could drop to 10200-10600 which I think is possible, yet after such a strong correction it is definitely worth betting with the trend if something is sitting at support. Even if if will be just a dead cat bounce. What got to me was the fear of a March-like crash, which imho is simply not likely to happen anytime soon.
When things get volatile, try to play level by level and go small until you get a clearer picture of the market. Let the dust settle.