Money Laundering Crackdown
Please click here for a chart of bitcoin crash (BTC).
Note the following:
- Going into the weekend, sentiment on bitcoin and other cryptos was extremely positive.
- The new direct listing of crypto exchange Coinbase (COIN) stock had added to the already extreme sentiment.
- Over the years, we have shared with you that when sentiment becomes extremely positive it is a contrary indicatory. In plain English, extreme positive sentiment is a sell signal.
- Bitcoin was vulnerable to a selloff because of extreme positive sentiment.
- The chart shows that over the weekend bitcoin crashed dropping as much as 15%.
- Bitcoin bulls stepped in to buy at the lows and have been buying fairly aggressively.
- The sentiment in bitcoin is still very positive.
- The real reason behind the crash was a report that the U. S. Treasury is about to crack down on money laundering using cryptos.
- Once bitcoin started falling, stops were taken out causing a steep drop. After the stops were taken out, bitcoin started bouncing. This pattern has repeated countless times in all assets including stocks.
- Bitcoin bulls do not want to believe that there may be a crackdown by the U. S. government as such a crackdown may be disastrous causing a substantial downside. Bitcoin bulls are promoting alternate explanations.
- There was a power outage in China’s Xinjing region. A significant amount of bitcoin is done in this region. The outage caused a significant drop in hash rate. Hash rate measures the volatility of the processing capacity of the entire bitcoin network. This explanation by bitcoin bulls is wrong because a hash rate drop slows transactions and any price drop is very temporary and not as significant as the price drop over the weekend.
- Bitcoin bulls are advancing another explanation – the central bank of Turkey banned the use of bitcoin. In the scheme of things, Turkey is a small country.
- The drop in bitcoin is dampening the bullish sentiment in the stock market this morning.
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Gold
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Markets
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Interest rates are ticking up and bonds are ticking down.
The dollar is weaker.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1778, silver futures are at $25.92, and oil futures are $63.01.
S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are down 62 points.
Protection Bands and What To Do Now?
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold existing positions. Based on individual risk preference, on dips, consider holding 🔒 in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades and short to medium-term hedges of 🔒 and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, total cash level should be more than stated above but significantly less than cash plus hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
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This post was published on ZYX Buy Change Alert.
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