Weekly Update August 22nd

August 22, 2022

Welcome to our Weekly newsletter!

What's on the agenda this week?

Monday - Nothing day

Tuesday - PMI / Manufacturing data

Wednesday - Goods orders

Thursday - US GDP, Jobs and PCE Prices - Jackson Hole kicks off

Friday - Jackson Hole - POWELL SPEECH

So the MAIN thing we need to watch this week is Powell speech on Friday - will be be more hawkish or more dovish? That's the big question of the week.

Before I went away I put out a report on the 16th saying we were reaching the business end of the bear market rally and this looks like it's materialised. I’ve returned to an absolute mess. There were some key indicators here that I want you all to take away and use next time.

  1. Record retail buying of stocks over the last 2/3 weeks.

  2. Smart money Vs Dumb money showed retail were bullish while smart money remained cautious

  3. VIX / VOL Crush - The VIX was so beaten down it was hard to crush vol and send markets higher

  4. OPEX - Options had a big expiry and the base we built under price was taken away (support)

  5. Influencer’s - Almost ALL of them wanking themselves off because the ETH/Alt charts looked bullish - I watched about 5 video’s from different influencers on YT calling for the new bull market at the recent local highs. Laughable.

Then the main one I keep thinking about is liquidity and speculation… This rally showed there’s still speculation in the market, people still have money to Yolo into CryptoDickbutts and various Alts and the stock market. This recent downturn seems to have only affected the lower classes, people making sub 30/40k per year. For these markets to truly bottom, I think we need to see the middle and upper classes get affected to see a true capitulation.

I think there’s a credit problem brewing under the surface… We all know from the various reports I’ve put out that consumer credit is at all-time highs. This need to unwind and the chickens need to come home to roost. I’ll put out a more detailed report this week on where the risks lie in the consumer credit markets… a clue - Cars have a big thing to do with it as well as Buy Now Pay Later loans.

TA

BTC - At a key level here and trying to defend the 20k level. If this breaks then I expect to see 19k - There’s a lot of work needed to get me interested here from a TA perspective. We're now under a cluster of MA’s and resistance - a move above 22.6k could start to make things interesting again but TBC.

BTC - looking at some on-chain dynamics the ONLY positive I can draw from this recent downturn is BTC seems to be getting accumulated with around 17k of BTC being taken off-exchange on the recent drop and we can still see larger wallets scooping up spot. Before the drop, a large amount of BTC was sent to exchange but I don’t see that trend persisting on this recent drop.

SPX500 - I need to see 4190 defended today otherwise I think the odds of seeing 4k increase dramatically - If 4k fails then I can almost guarantee we see a test of the lows and possibly make new lows.

So the main thing we really need to watch for this week is Powell's speech on Friday - this will be a very important meeting and should set the tone until the next Fed meeting on the 21st of Sept.

Developer of Crypto-Mixing Service Tornado Cash arrested in the Netherlands

A 29-year-old suspected developer of the Tornado Cash protocol was arrested in Amsterdam following sanctions imposed on the project by the US government. The sanctions have been imposed on the allegation that over $ 7 billion worth of virtual currency has been laundered through the protocol since its inception in 2019. The Amsterdam official said that the 29-year-old developer was arrested for “concealing criminal financial flows and facilitating money laundering”. This news has caused significant uproar in the crypto and wider communities are given that the developer was arrested for writing code to create a privacy-preserving public good. Whether you agree or not with Tornado Cash, this is a dangerous precedent to set.

Argentina's Capital, Buenos Aires, to Run Ethereum Nodes in 2023.

Argentina announced they will be launching and running their own Ethereum validator nodes in 2023. Diego Fernandez, secretary of Innovation and Digital Transformation for Buenos Aires stated that the effort “has exploratory and regulatory purposes” and would help the city “develop adaptable regulation” for crypto. Buenos Aires would be one of the first cities in the world whereby governments deploy Ethereum nodes. As another South American nation takes a step closer to crypto, this is an exciting development and another example of gradual adoption.

The Google Parent Invested $1.5 Billion Into Four Blockchain Companies Between September 2021 and June 2022

A recent study found that Alphabet (Google’s parent company) invested around $1.5Billion in blockchain-related projects between Sept 2021 - June 2022. The investments included blockchain companies such as Fireblocks, Dapper Labs, Voltage and Digital Currency Group. Other investment giants such as BlackRock & Morgan Stanley have also invested over $ 1 billion each in blockchain investment rounds as well. The report also named Samsung, Goldman Sachs, PayPal, Microsoft and various others as each having spent upwards of $500m on similar blockchain investments.

Decentralised Exchange NFT Marketplace Sudoswap Explodes as Opensea competitor

The current NFT ecosystem relies on centralised marketplaces such as Opensea to facilitate NFT trading. Sudoswap employs automated market-making (AMM) algorithms and liquidity pools similar to Ethereum DEX Uniswap for its decentralised NFT trades. Liquidity has been an issue with NFT marketplaces but Sudoswap allows traders to buy/sell without having to wait for offers. Buyers & Sellers can set up pools to buy/sell at certain prices creating a more liquid market. Sudoswap only takes 0.5% in fees as opposed to 2.5% Opensea charges, and also pays no NFT royalties to artists on sales. The low fees and the liquid market has seen Sudoswap grow exponentially in recent weeks in terms of volume, new users and daily revenue. Not paying creator royalties has been controversial as this undermining of artists may be unsustainable long term.

New Blockchain DogeChain Launches

DogeChain is a newly launched blockchain which allows users to bridge over DOGE to use the chains DeFi, NFT and Web3 services etc. DogeChain isn’t a part of the original Dogecoin and the original developers and creators are not involved in the project. The project is an unofficial Layer 2 for Dogecoin, however not a true L2 as it isn’t built on top of Dogecoin itself. As to be expected with a memecoin-inspired blockchain, the projects launching on Dogechain are largely anonymous, underdeveloped and un-vetted leading to many ‘ rug pulls’ and failed projects already. There have been some standout performers with tokens doing 50-100x in the first few days, but this is largely speculation from market participants. Not to underestimate the power of Memecoins, this is something worth keeping eye on to see if it gains traction.

Terra’s founder, Do Kwon breaks silence in a new interview

Terraform lbs CEO, Do Kwon gave his first interview since the protocols collapse in May which destroyed nearly $40 Billion in investor capital in just a few days. Facing regulatory and legal pressure regarding Terra’s collapse, Do Kwon gave his first public interview on the topic. Do maintained that Terra was never a Ponzi scheme and that no fraud was committed, although dubiously empathises with investors who lost money and stated “I’ve never thought about what could happen to me if this fails”. The 30-minute interview likely gave little comfort to those affected after losing everything.

BULLISH REVERSAL PATTERNS

Since the all-time highs on the crypto markets months ago the majority of assets have been trapped in a very strong downtrend, the infamous bear market; but currently markets are experiencing a substantial rise that caught a lot of people off guard and made them miss the most of it.

You want to get in at the bottom, but you’re unsure of yourself. The trick is to identify when, how, and where to go long on a market.

Not knowing how to make sense of charts in the heat of the battle only adds to the difficulty of trading. Let’s face it. Day trading isn't easy. It can be overwhelming, especially at the beginning.

Thankfully, the answers to those questions are in the charts, it only requires you to put in the time to understand and read the price action. The bullish candlestick reversal patterns will help with that.

Before we delve into more details, there are two principles to be aware of when using candlestick patterns:

  1. Bullish reversal patterns should form within a downtrend.

  2. Reversal patterns require bullish confirmation being followed by an upside price move with high volume.

  3. Look for reversal candlestick patterns in areas with confluence with other means of traditional technical analysis like trend lines, horizontal support/resistance levels, divergences, or Fibonacci levels among others.

There are a great many candlestick patterns that indicate an opportunity to buy. We will focus on five bullish candlestick patterns that give a very strong reversal signal.

HAMMER

The hammer appears after a downtrend and has a long lower wick on the candle at least two times equal to the size of the body. Is a bullish candle pattern that indicates the reversal of a downtrend move.

It offers us evidence that selling pressure is diminishing or being absorbed. In addition, if the volume signature associated is significant, it adds even more confidence to our thesis.

Ideally, you identify the hammer candle, take a position long on the break to the upside of the candle, and set risk in the body of the Hammer, or at the lows.

BULLISH ENGULFING

Imagine the shock if you are a short seller when a market appears to confirm your downward thesis, just to completely reverse itself. Such is the case with the Bullish Engulfing.

The combination of a market rising plus the shorts starting to cover as they witness the rising price results in a bullish candlestick pattern that engulfs the efforts of the bears. For the long-biased trader, the opportunity is perfect.

As with any setup, looking for evidence to build confidence in either direction is what we are looking for. In this particular case, the fact that bears were completely overcome in a single bar, is evidence enough.

You go long at the break of the prior candle and set your risk at the lows, or in the body of the first green candle.

THREE WHITE SOLDIERS

This pattern consists of three long body bullish candles that close progressively higher in a row. From a supply and demand perspective, the three white soldiers can help traders identify a shift in market sentiment where buying pressure suppresses selling pressure.

The three white soldiers pattern is used as an entry to establish a long position, and there are who ways to use it: Long when the highest price of the three green candles is broken, or

long the pullback.

This bullish reversal candlestick pattern is one of the clearest to identify bullish reversals but the stop losses tend to be wider than usual, mind your risk according to your portfolio, and set the stop just below the low.

MORNING STAR

Technically speaking, the morning star should gap down. But this happens very rarely in the crypto markets. Therefore, a solid doji / short candle would suffice to identify the reversal pattern.

The close of the last candle on this pattern (bullish long-bodied) should close above the midpoint of the initial candle (bearish long-bodied). The candle in the middle is short-bodied.

The middle candle tells us that there is either indecision or lack of follow-through to the downside, and when the last candle rallies to higher prices as bears cover and bulls take advantage of discounted pricing if this happens with an increase in volume we have our reversal confirmation.

Set your risk below the low of the middle candle within the formation. This will usually be the lowest low within the structure, providing an excellent area for placing the stop loss. Prices should not move below this level, and if it does it will typically invalidate the bullish potential of that specific setup.

PIERCING LINE

This pattern can look very similar to the Bullish Engulfing pattern that we saw previously. The exception is that the Piercing Line doesn’t completely engulf the prior candle.

It is still considered a bullish candlestick pattern because it overcomes the downward momentum to close at least midway into the body of the previous candle.

Hence the name: it pierces the lower line, but inevitably retracts.

The entry is on the next candle, confirming the uptrend, with a stop at the lows.

As we discussed at the beginning there are more bullish patterns that signal reversal, a very good practice is to use them in support areas as a trigger to enter the market in a long position. Additional confluence with other indicators or tools of your liking could give you extra confidence in the setup.

Here is a cheat sheet with compelling reversal patterns, bullish and bearish to help you identify the best moments to buy or sell your assets and give you extra confidence in your trading.

As with any setup, the more evidence we have to confirm our bias and plan, the better. For this reason, it is always good to ask yourself:

  • Is the trend in my favour?

  • Is it time for a reversal?

  • Does volume confirm my thesis?

  • Is the price at an area of support or resistance?

  • Do multiple timeframes align with my idea?

  • What will I risk, and where should I target for profit-taking and exit?

Your criteria may be more involved, but the idea is the same. Candlestick charts are just a confirmation of an overall plan of attack.

Now you may be asking yourself, “How do I recognize patterns in real-time?”

That’s a great question, and the answer lies in practice, practice and… practice. Also important to know WHEN and WHERE to look at them, remember, it’s essential to start looking at candlestick patterns and formations on relevant areas of support and resistance, in the meantime while the price is yet to reach those areas you can check the reversal formation that happened in the past on the same area to train your eye.

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