It's vital to not let the day-to-day price action drive our execution. It's driven by nothing but emotion, and it does more harm to investors than good.
We all know this. But it can be difficult to step back when necessary.
Objectively speaking, one of the many elements that differentiate great investors from mediocre ones is the ability to sit out of the market when there are no high-conviction opportunities.
One of our simple workarounds to this constant desire to be positioned is to set our invalidations and targets prior to putting money on the line.
Last week, most crypto markets saw moderate selling pressure following retests of critical levels of resistance.
At the same time, momentum is diverging in a bearish fashion, with our indicators putting in lower highs on this most recent high in price action.
Further, equity markets have begun to feel the pressure after selling off on a retest of resistance levels.
We'd previously noted that Bitcoin and equity indices had briefly decoupled on short time frames, pointing to resiliency on the part of crypto markets.
Last week, we saw this correlation return, with Bitcoin being dragged lower by selling pressure in risk markets generally.
Equities had their worst session of the year yesterday, as the S&P 500 retraced 2% during the day.
This comes as rates and the US dollar push higher, with the yield on the 10-year US Treasury note making fresh three-month highs.
Surprisingly, Bitcoin seems to be bucking this recent selling pressure, and the short-term correlations between stocks and Bitcoin have flipped negative for the first time since the FTX fiasco.
During that period, Bitcoin crashed to its cycle lows of 16,000, while equity markets were hammering out their most recent bottom.
And we're not talking about the kind of random pumps-and-dumps that happened throughout last year.
It's quite the opposite, actually.
Many coins have gone absolutely nowhere for quarters and are only now beginning to test the upper bounds of these long-term ranges.
Although this period has been incredibly lackluster in the number of directional trade ideas, the flipside is that many coins have had ample time to carve out long-term bases.
Like we always argue around here, we're better served by keeping it simple.
If this is truly the beginning stage of a new crypto bull market, buying resolutions out of these basing patterns will be a great strategy for the months and quarters ahead.
Last week, we saw bulls step in to defend critical short-term levels of interest.
Bitcoin closed the week up 11.50%, while Ethereum posted an 11% gain. With much of this historically choppy month behind us, these markets are pushing to the upper bounds of their long-term ranges.
Further, the S&P is coiling right beneath resistance near 4,100.
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,
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.
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.
