This is the video recording of our February 17, 2023, All Star Charts Crypto Weekly Strategy Session.
How to Profit From Reckless Short Sellers
Different market environments are conducive to certain scans and less so to others.
Coming off this perilous winter, strategies identifying short opportunities have been greatly rewarded. And, throughout the pandemic, it was the complete opposite.
Like we said in yesterday’s note, half the battle is in understanding how to directionally position in the underlying trend. The simple fact of that matter is that many have been caught offside betting against names in substantial drawdowns.
Names like Coinbase, Marathon Digital, and, most recently, Silvergate have all sported notable short interest coming off this bear market.
Identifying this skew, we reintroduced our Freshly Squeezed scan. The idea is rather intuitive; we’re simply looking for stocks that people are betting against. When a stock is heavily shorted, we know there are incremental buyers waiting in the wings.
As Strazza said in the latest Freshly Squeezed report,
We love this as new buyers are the one true catalyst for higher prices. When shorts are proven wrong, they have to buy their shares back to close out their positions. And when they do, and momentum starts moving higher in these shorted names, it is not uncommon for massive rallies to occur.
ASC Premium Members can read the full report here.
One of the names we’ve monitored in recent weeks is Silvergate Capital $SI.
Understand the Market Environment
You heard the news?
It’s a bull market in the world of crypto.
It’s been a minute since we’ve been able to say that, amiright?
But let’s face it.
We’re seeing these coins thrust to new quarterly highs, hitting overbought conditions in the process.
At its peak a few weeks ago, approximately 70% of our universe hit overbought conditions, while three-quarters of all coins reclaimed their 200-day moving average.
This is within the context of these coins coming off 80%, even greater than 90% drawdowns.
Doesn’t sound bearish to me.
In fact, it’s quite the opposite.
Seasonality Suggests a Choppy February
We began last week arguing the case for short-term patience while emphasizing that the primary trends have shifted higher.
As we move into the middle of February, seasonality trends suggest a choppy couple of weeks ahead.
At the same time, momentum in the US dollar has accumulated in recent days, as we observe some mild selling pressure in crypto markets. With the CPI release on Tuesday, it’s reasonable to expect this volatility to continue.
This comes as Bitcoin retraces following its first retest of the August 2022 highs.
[Crypto] Weekly Strategy Session – February 10, 2023
This is the video recording of our February 10, 2023, All Star Charts Crypto Weekly Strategy Session.
Fibonacci Levels in Polygon
Have you figured it out yet?
Is Bitcoin about to roll over here?
Or are we flagging before the next run-up?
The beauty of this game is that we don’t need to predict the future. Instead, we can rely on price action to dictate our execution.
In this case, we’re waiting to see how Bitcoin reacts to all this overhead supply before committing to any new longs.
And, on the contrary, if we see a resolution out of this range, or if we see weakness in the coming weeks, we’ll be loading up on some positions.
So, in the case that we see some selling pressure come in, where do we want to be positioned?
What Will It Be?
Crypto markets can be daunting for those who come from traditional backgrounds.
There are entirely new market mechanisms, trading hours, different exchanges, and distinct ways to analyze the market, let alone the decentralized nature of how these markets operate.
It’s no wonder that people find this asset class complicated.
Adding to the already heightened perplexity of these markets is how they’re driven and how investors benchmark their performance.
Hear me out.
Targets Hit, Now What?
They teach you this stuff at technical analysis kindergarten.
Buy support.
Sell resistance.
Of course, in the real world, with our primitive monkey brains, implementing this into a trading system is easier said than done. Just take a look at the squeeze you’re seeing in real-time in all these beaten-up growth stocks.
The permabears started shorting these names in droves when they’d already slumped into 90% drawdowns.
Talk about a reckless strategy…
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