Weekly Update October 3rd

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Will the Fed blink? 

I just think the fed is forced to slow here… I don’t expect a full Pivot but I do expect a slowdown/pause in hiking rates so aggressively. Additionally, I see some interesting signs with BTC on chain at these levels.

What I’m looking at:

MOVE index hitting Covid levels

Feds' number 1 mandate is financial stability over everything…

EXTREME moves in the bond market that now looks overextended from a technical perspective. I also don’t see much more room for these to continue much higher without continued systemic risk.  

Signs of financial instability showing through – Credit Suisse – A US regulated entity

EUROPE looks disgusting… The US might see some flows

CCC credit spreads are hitting March 2020 levels – Areas of credit markets showing signs of breakage

USD divergence, a shaky weekly candle that does need confirmation but still…

Looking at the flows and some on-chain data while we have been in this period of consolidation.

NUPL – Net Unrealized profit / Loss – in capitulation territory

Stable Coin flows - we’ve seen multiple large scale withdrawals from exchanges – Presumably profit taking. So far price has been able to absorb these sells without breaking materially lower.

When we look at the BTC net flows we can see BTC being withdrawn from exchange far outweighs inflows.

Miner flows – Looking at what miners have been doing in this period of consolidation – some heavy spikes in selling – over $350M in sells during this period. Again the market has been able to absorb.

BTC price action – Since SPX started declining heavy on the 13th – that ruthless CPI data BTC has performed well on a relative basis. BTC topped out before Equities so I also expect it will likely bottom ahead of equities. Regardless the relative strength is there.

Again not betting the house on it here as I still see downside risks but happy to add. 

UK Return to Quantitative Easing

Last week we saw the Bank of England return to quantitative easing to restore market functioning and reduce risks of contagion. With double-digit inflation, the decision to print more money expectedly raised some eyebrows and only emphasises the financial struggles faced by the nation. It was in full financial crisis mode on Wednesday with the announcement that the BoE would restart money printing at “whatever scale necessary”, starting with $65bn in new quantitative easing. The BoE purchased long-dated government bonds to protect contagion within many large UK pension funds. The Pound Sterling plunged against the US Dollar and other currencies off the back of the announcement as well as the government's recent fiscal statement. Economic mayhem.

Credit Suisse & Deutsche Bank on the Verge of Collapse

Comparisons are being drawn to a Lehman Brothers moment in 2008 - although slightly premature. ‘Credit Suisse and Deutsche Bank, two of the world’s largest banks, are suffering from distressed valuations and the banks’ credit default insurance levels are approaching degrees not seen since 2008’. The two banks have a combined asset base of over $2 Trillion. Both of the bank's stocks are down 90% since their 2009 highs and fears are growing that the banks are going to fail, similar to what we saw in 2008 with the Lehman Brothers.

HUGE Blue Chip NFT Sales

After what can only be described as a mass exodus of trading activity in NFTs in 2022 - last week we saw some eye-catching purchases. We saw CryptoPunk 2924 bought for 3,300 ETH ($4,451,633.94) - this was the highest ETH value sale for a non-alien Punk in history. The same seller and renowned NFT collector SeedPhrase also sold an Alien Punk for 980 ETH a few days later. We also saw 1000 ETH borrowed against two Mega Mutants (MAYC) - the borrower is required to pay back 1,044 ETH in 90 days (18% APY)... is he sweeping elsewhere?. Lastly, Tyler Hobbs, the creator of the Fidenza project on Art Blocks released min passes for their new collection QQL which dropped via Dutch Auction last Wednesday. The generative art collection sold out 900 passes at 14ETH, raising 12,600 ETH in the process. Maybe NFTs aren’t dead just yet.

Uniswap eyeing over $100m in new funding

Reports suggest that Uniswap Labs are in the early stages of putting together a new financial round, seeking to raise between $100m-$200m in capital at a valuation of $1 Billion. The parent firm of the world’s largest Decentralized Exchange (Uniswap) looks to broaden its offerings. The new investors have been cited as Polychain and one of Singapore’s sovereign funds. Whilst current investors already include the likes of a16z and Paradigm. Recently, Uniswap Labs had shared plans to introduce “several new products” - one of which will allow customers to trade NFTs on Uniswap & another being a potential digital wallet.

Biggest Token Unlocks in October

Sweatcoin - 04 October 2022 - 2.7% Unlock ($16.1m)

Moonbeam - 11 October 2022  - 2.2% Unlock ($9.7m)

BitDao - 15 October 2022  - 1.9% ($89.4m)

ApeCoin - 17 October 2022 - 0.7% ($36.8m)

Axie Infinity - 25 October 2022  - 8.0% ($265.2m)

DYDX - 25 October 2022 - 0.6% ($6.9m)

Chart Patterns, Market Structure and Price Action

Much of our understanding of chart patterns can be attributed to the work of Richard Schabacker. His 1932 classic, Technical Analysis and Stock Market Profits, laid the foundations for modern pattern analysis. In Technical Analysis of Stock Trends (1948), Edwards and Magee credit Schabacker for most of the concepts put forth in the first part of their book. A little bit later, in 1957; Thomas N. Bulkowski published his chart and candlestick patterns encyclopaedias that are the bible of technical pattern analysis even nowadays.

Those decades set the beginning of the technical analysis era (TA), before that most investments were done from a fundamental point of view (FA).

Pattern analysis may seem straightforward, but it is by no means an easy task. Technical analysis can at times be less science and more art. In addition, pattern recognition can be open to interpretation, which can be subject to personal biases. To defend against biases and confirm pattern interpretations, other aspects of technical analysis should be employed to verify or refute the conclusions drawn. While many patterns may seem similar, no two patterns are exactly alike. False breakouts, bogus reads, and exceptions to the rule are all part of the chart patterns used.

Chart Patterns

There are hundreds of thousands of market participants buying and selling assets for a wide variety of reasons: hope of gain, fear of loss, inflation, tax consequences, short-covering, hedging, stop-loss triggers, price target triggers, fundamental analysis, technical analysis, recommendations and a few dozen more. 

Trying to figure out why participants are buying and selling can be a daunting process. Chart patterns put all buying and selling into perspective by consolidating the forces of supply and demand into a concise picture. As a complete pictorial record of all trading, chart patterns provide a framework to analyse the battle raging between bulls and bears. More importantly, chart patterns and technical analysis can help determine who is winning the battle, allowing traders and investors to position themselves accordingly.

In many ways, chart patterns are just simplified and very visual versions of market structure (MS) changes. They can be used to identify an easier way market structure changes and a way to approach them to make a trade.

Market structure

Market structure by definition is the simplest form of price movement in the market. It is basic support and resistance levels on the charts, swing highs, and swing lows. These are levels, which are easily identified and hold until they don’t. Market structure is a trend-following tool that traders read and follow based on how an asset moves. From bullish moves, to bearish and in-between with ranges.

Market Structure is often referred to as Price Action (PA). Once you understand the trend and the anticipated moves, you can add other criteria to your trade qualifiers. Like volume, pivot points, moving averages, and more. 

Perfect combo

In the end, chart patterns are a visual way to understand price action and market structure. It’s all about the way your brain assimilates the information.At first chart patterns come in very handy as the learning curve to be able to read the charts is not precisely short. Think of the patterns as an advanced and very clever shortcut to the main goal. It’s very easy to memorise the market shapes and further likely outcomes when seeing them drawn with specific shapes and names. Once you have learned them, it’s great to get to the charts and identify them, train your eye and try to predict the pattern’s outcome.With time and dedication, the market structure reading is going to resonate in all those chart patterns, and probably there will be a touring point where you will be expecting a new touch on a patterns trendline and realise that that’s gonna be a new high or low in a developed trend. The same when you are expecting the price to break the pattern to enter your trade, probably you will realise at some point that there is an S/R level involved in the process and that afterwards once again the creation of a new high or low will be the confirmation of your trade.In the end, chart patterns should start to fade and your trained eyes are going to rely on market structure and price action, which is the real bread and butter of trading the markets.

Conclusion

As you can see, chat patterns are the means to an end. My advice if you already use them is to try and go a step further, a little bit deeper in the reading of the charts. And if you haven't started yet, I encourage you to have a look at them and use them to train your brain and eyes easily.

Being able to approach the charts mechanically to constantly be in tune with the right context at play, which in its simplest form, comes down to trade trends or ranges. Once you can read price action, or properly identify market structure in the charts, I can assure you that you will be ticking yet another critical box when it comes to developing a solid analytical expertise when trading. As a result, it will allow you to pick locations to trade off for low risk and potentially high reward.

Join us to have access to our academy materials where chart patterns and market structure references are merged to allow you to get faster to the finish line.