The BanksSome interesting developments in the bank etfs today - XLF and KRE, worth watching on both a weekly and daily basis. Long term JPM looks like a head and shoulders may be forming.
Community ideas
Grains outlook hangs in the balance of the Black Sea Grain deal The failed rebellion by the Wagner group over the June 24th weekend brought to light not only the ineptitude of the Russian top military command but also the carefully crafted image of President Putin as the guarantor of stability. Putin’s assertion that the quick end of the 24-hour revolt had shown the unity of Russians behind him was contradicted by footage of adoring crowds cheering Prigozhin and his fighters as they came out of a southern city they had occupied. It is possible that Putin could step up the escalation between Russia and Ukraine to re-establish his position which currently appears weakened. The recent political turmoil in Russia lowers the probability of the Black Sea Grain deal being extended beyond mid-July (current deal expires on July 18th).
No respite in Russia’s sabre-rattling
Even prior to the failed coup in Russia, pessimism had been expressed by both the Russian and Ukrainian sides. One senior Ukrainian diplomat has even spoken of a 99% probability of Russia withdrawing from the agreement. Russia has repeatedly threatened to quit the deal, complaining that obstacles remain to its own exports of food and fertilizer. It has also demanded the re-opening of the ammonia pipeline as a condition for renewing the grain corridor deal through the Black Sea. However, the ammonia pipeline was damaged a day before the Kakhovka dam was destroyed on June 6. This increases the risk that Russia could after all follow through on its threat and revoke the grain deal as early as July.
Grains outlook clouded by Black Sea Grain deal
The original agreement brokered on 22 July 2022, by the United Nations and Turkey to open a safe maritime humanitarian corridor in the Black Sea helped to address the global food security crisis and lower grains prices. Participants on the agricultural markets remain anxious on the extension of the current deal and it could lend additional tailwinds to grains prices.
According to data from the Commodity Futures Trading Commission, wheat, corn and soybeans saw a 21%, 43% and 35% decline in short positioning underscoring a shift in sentiment towards weather uncertainty and geopolitical risk premiums.
Top wheat producers forecast weak supply outlook owing to adverse weather conditions
The prospects for the wheat crop in key producer countries has disappointed of late owing to adverse weather conditions. Dry conditions and low soil moisture in the west and east coasts of Australia imply that much of the 2023-24 crop has been sown dry and will require adequate and timely rain to allow the plants to germinate. Wheat is a major winter crop in Australia with planting from April and the harvest starting in November. The expected onset of the El Niño conditions from July will likely see winter crop output fall significantly according to Australian Bureau of Agricultural and Resource Economics and Science (ABARES).
Across the globe, wild weather is affecting crops elsewhere, including Americas and North Africa. Europe is also being impacted by high temperatures and scant rainfall, increasing the risk of damage to the continent’s wheat crops.
On the flip side, Canada and Ukrainian wheat supply forecasts are positive. According to Statistics Canada, 26.9 million acres have been planted with wheat – not only is this the highest figure in 22 years, it is also 0.4 million acres more than the analysts surveyed by Bloomberg had expected . The Ukrainian Grain Association (UGA) predicts significantly higher yields this year, meaning that the crop – contrary to what has been expected so far – could actually turn out to be higher than last season. However Ukrainian farmers are likely to struggle to export their grain owing to the uncertainty surrounding the Black Sea grains corridor.
Corn market remains bullish
Dry weather in the US and Europe has seen the condition of the corn and soybean crop deteriorate resulting in a price positive environment for corn and soybean. The United States Department of Agriculture’s (USDA) in its latest crop progress report continues to highlight concerns for the US corn and soybean crop, given the current dry weather conditions. The USDA rates 50% of the corn crop in good-to-excellent condition compared to 67% seen at the same stage last year.
Moreover, the rating of the corn crop is the lowest seen for this time of year since 1988. This implies that the USDA’s optimistic forecast of 15.3bn bushels for the us corn crop in 2023/24 will hardly prove reasonable any longer. The National Centres for Environmental Prediction said it expects many parts of the Corn Belt that have been turning dry over the past month will get more rain than usual for this time of year over the next two weeks marking a change from earlier indications that El Niño would limit rainfall for thirsty crops.
Soybean is also facing a similar story with 51% of the soybean crop rated good-to-excellent condition compared to 65% at the same time last year . Growing pessimism over the extension of the Black Sea Grains deal beyond mid-July is also likely to lend an additional tailwind for corn and soybean. Weak Chinese imports through most of the 2022/23 season surged in May to over 14.8mmt of corn, wheat, and soybeans, which was the highest monthly total since June 2021 . However we would caution that a fairly muted crop-based biofuel quotas from the US Environmental Protection Agency could offset some of the strength in Chinese demand.
The front end of the soybean futures curve has extended its backwardation, now providing investors a 6.4% roll yield compared to 0% last month .
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
FOMC Minutes in the Charts: EUR/USD & GBP/USDDuring their June meeting, minutes released on Wednesday indicated that almost all Federal Reserve officials expect further tightening in the future. Despite the majority's belief in upcoming rate hikes, policymakers chose not to increase rates due to concerns about over-tightening. They acknowledged the delayed impact of previous policies and other factors, which led them to skip the June meeting after implementing ten consecutive rate increases.
Out of the 18 participants, all but two anticipated at least one rate hike to be appropriate within this year, while twelve members expected two or more hikes.
The prevailing consensus that the US central bank will raise borrowing costs by 25 basis points at the end of the July policy meeting has lent some strength to the US Dollar and exerted downward pressure on the GBP/USD and EUR/USD. The DXY (US Dollar Index) surged above 103.30, reaching its highest level of the week.
EUR/USD further declined to the 1.0850 region. The outlook for the Euro has turned negative as the EUR/USD pair dropped below the 20-day simple moving average (SMA).
If the GBP/USD pair falls below 1.2700 and confirms that level as resistance, the next potential bearish targets could be 1.2680, 1.2658, 1.2647 according to fib retracement levels and previously pivot points.
Halfway thereWe're halfway through the year of 2023. Mega Cap earnings season begins in July. The 8 largest companies by market capitalization are AAPL, MSFT, GOOGL, AMZN, NVDA, TSLA, BRK.B, META. Here's an 8 split frame, 6 month chart with financial data.
AAPL 3.05 T
+49% YTD
Earnings 8/3/23
MSFT 2.53 T
+42% YTD
Earnings 7/25/23
GOOGL 1.53 T
+36% YTD
Earnings 7/25/23
AMZN 1.34 T
+55% YTD
Earnings 7/27/23
NVDA 1.04 T
+189% YTD
Earnings 8/23/23
TSLA 830 B
+113% YTD
Earnings 8/19/23
BRK.B 745 B
+10% YTD
Earnings 8/7/23
META 735 B
+138% YTD
Earnings 7/26/23
Revenue = The total amount of money brought in by a company's operations, measured over a set amount of time.
EPS = Is calculated by subtracting any preferred dividends from a company's net income and dividing that amount by the number of shares outstanding.
PE = The price-to-earnings (P/E) ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings.
PB = The Price-to-book value (P/B) is the ratio of the market value of a company's shares (share price) over its book value of equity.
PS = The price-to-sales P/S ratio is calculated by dividing the stock price by the underlying company's sales per share.
FCF = Free cash flow (FCF) represents the cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets.
Cash to debt ratio = The cash flow-to-debt ratio is the ratio of a company's cash flow from operations to its total debt. A ratio of 1 or greater is best, whereas a ratio of less than 1 shows that a firm isn't generating sufficient cash flow to meet its debt obligations.
PEG ratio = The price/earnings to growth ratio (PEG ratio) is a stock's price-to-earnings (P/E) ratio divided by the growth rate of its earnings for a specified time period. Generally, a PEG below 1 means a stock is undervalued.
Current ratio = The current ratio is Current Assets divided by Current Liabilities. It's a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. In general, a current ratio of 2 or higher is considered good, and anything lower than 2 is a cause for concern.
AAPL Upward Channel OverextensionAAPL has been leading the market over the past couple of months after running more than 55% from its recent bottom and hitting that mythic $3 trillion dollar market cap.
For the past two months AAPL has been trading within a clear upward channel clearly respecting the top and bottom of the trend. AAPL has been making a series of higher lows and higher highs while making slight pullbacks to key demand levels.
Last week AAPL finally broke up from the wedge pattern on the hourly to finally head up to test the top of the channel trend again. After the gap up and run last week AAPL is starting to look overextended on the hourly while we are also spotting a possible bearish divergence in the RSI forming.
Careful going long on AAPL as so far it is being rejected at this supply zone and we have picked up bearish activity betting on a pullback to $191.50. Risk/reward doesn't favor going long as it is overextended even from EMAs.
Bulls are looking for a break above the channel or $195, target $196.33 or our 0.619 fib extension. Bears are happy as long as AAPL doesn't break above the supply zone and remains below $195.
Battle of the New EV NASDAQ ComponentsLucid and Rivian, both new components of the NASDAQ:NDX , have been showing up on the High-Volume Institutional Activity recently.
NASDAQ:LCID has the beginnings of a bottom attempt developing with a Dark Pool buy zone emerging, but it's been slow-going for this EV company. Professional short-term trading is evident in the current run up, as it is in other EV companies this week, spurred by the bankruptcy of Lordstown Motors, many would say.
NASDAQ:RIVN has a clearer Dark Pool buy zone developing at this bottoming level with the same Pro Trader footprint in the current run up. This type of bottom formation provides a sturdier support level--evidence of more conviction from the institutions?
Both stocks have a lot of work to do to complete their bottoms for more than short-term trading at this time. Resistance AND competition are heavy ahead, as it's still early days in the race to dominance in EV Auto Manufacturing.
APPLE ATH Fueled by Quintet PowerhousesHow did APPLE make a new ATH?
In the fiscal year of 2022, Apple Inc. amassed a staggering revenue close to $400 billion. The tech behemoth’s financial forecast predicts an even more dazzling $450 billion by 2023. What’s at the nucleus of this financial prowess? Here’s a dissection of the five products and services that are the linchpins in Apple's revenue generation.
1. iPhone: The Standard-Bearer
Since its inception in 2007, the iPhone has been the lodestar in Apple's stellar performance, consistently accounting for over half of the company’s revenue. There was a lull in the iPhone's sales during 2015-2020, but the fiscal years of 2021 and 2022 witnessed a robust resurgence. Could it be the worldwide lockdowns that reignited consumers' affinity for this beloved gadget? One wonders.
Moreover, Apple's unceasing innovation has been a catalyst in this resurgence. The company has been adept at understanding and adapting to market trends, releasing newer models with advanced features such as enhanced camera capabilities, cutting-edge processors, and improved battery life. The introduction of 5G technology in the iPhone 12 and subsequent models further bolstered its appeal. With the ever-evolving landscape of consumer preferences, Apple's commitment to innovation ensures that the iPhone continues to hold its enviable position in the market.
2. Services: A Diverse Armamentarium
Apple's services segment is a multi-pronged affair. The App Store and Apple Music are the twin pillars, but AppleCare, Apple Pay, Apple TV+, Apple Card, and iCloud storage are significant contributors as well. It's been an upward trajectory for this segment since 2013, with no signs of abating.
Additionally, the expansion of Apple's services is emblematic of the company's strategic diversification. As the digital landscape evolves, Apple has astutely tapped into the growing demand for integrated services. Its focus on user privacy and seamless integration across devices has been a strong value proposition. For instance, Apple TV+ enters a competitive streaming market but with original content and collaborations with high-profile creators. Apple’s services segment not only supplements its revenue but also enhances customer retention and creates a more entrenched ecosystem, encouraging users to invest more within the Apple universe.
3. Mac: The Unwavering Pillar
The allure of personal computers has attenuated globally, and Mac's revenue plateaued between 2011 and 2020. However, the Mac remains integral to Apple’s ecosystem, not least because of its role in keeping users within Apple's interconnected iOS operating system.
In recent times, Apple has sought to reinvigorate the Mac lineup through innovation and integration. The introduction of Apple's own M1 chip, as opposed to relying on Intel's processors, marked a significant turning point. The M1 chip has been lauded for its performance and energy efficiency, giving the Mac a competitive edge. Furthermore, the seamless integration between the Mac and other Apple devices through features like Handoff, Universal Clipboard, and Sidecar has reinforced the appeal of owning a Mac as part of the larger Apple ecosystem. This ongoing revitalization suggests that Apple is far from considering the Mac as a legacy product, and is instead positioning it for a renewed period of relevance and growth.
4. iPad: Upon their debut, iPads were an instant sensation, raking in an impressive $19 billion in the first year. There was a zenith in 2014, after which sales experienced a decline. Currently, iPad sales hover in the range of $20-30 billion, cementing their place in Apple’s revenue mix.
5. Wearables & Accessories:
The Rising Contenders Under this category, one finds an array of products including Beats headphones, AirPods, and the Apple Watch. This segment has been climbing the ladder of success since 2015. Notably, AirPods are estimated to constitute a quarter of the revenue in this category.
Apple's foray into the wearables and accessories market is indicative of its visionary approach to emerging consumer trends. The health and fitness boom, for instance, has been adeptly capitalized on through the Apple Watch, which offers features like heart rate monitoring, exercise tracking, and ECG. AirPods, on the other hand, have become something of a cultural phenomenon, merging high-quality audio with sleek design. These products are not just revenue generators; they are an extension of Apple's ecosystem, promoting brand loyalty and customer engagement. By continuously innovating and expanding in this sector, Apple ensures it remains not just a heavyweight in consumer electronics but a trendsetter in lifestyle technologies.
Conclusion: Apple's ascent to become the first company to reach $1 trillion and subsequently $2 trillion in market capitalization is hardly fortuitous. The aforementioned quintet of products and services is the bedrock of its supremacy. With consumers' unabated ardor for Apple’s innovations and the brand loyalty it commands, NASDAQ:AAPL remains a formidable player in the stock market. Is Apple part of your investment portfolio?
Live stream - Bitcoin: Watch For These 2 Retracement Scenarios TBitcoin price action analysis, key levels, potential scenarios for coming week. Question about stock or alt? Ask in chat.
ETH's Nested Flags: Bull Flag within a Bear FlagPrimary Chart: Weekly Candle Chart of ETH/USD with Competing Flag Scenarios
Longer-Term Analysis
BITSTAMP:ETHUSD has been largely in a trading range since making its low in June 2022. Yes, some of the moves within that range have been quite substantial. The move off the June 2022 low to the early August 2022 high was about +130.59% higher. The next leg higher from the early November 2022 low to the April 2023 high was about a +99% move. In between those moves was a substantial -47.29% downdraft. (Downdrafts may have quite a smaller percentage because the starting point begins much higher than the starting point for an up move.)
But big volatility, huge moves, don't guarantee a strong trend either way. A stock can chop up and down in a volatile way while its overall progress remains relatively insignificant given the volatility and moves. Consider the 1-year uptrend on the Primary Chart. The trend does not form a powerful, steep upward slope, moving sharply higher for many weeks consecutively like other charts we have come to see in recent months, e.g., NVDA, AAPL.
Instead, the trend has largely been sideways with a modest uptrend with only a gradual incline despite the big moves within this well-defined channel. This could be a bear flag, though that is not yet confirmed. It's a scenario in any case that should be kept in mind on a break of the upward trendline from June 2022 lows.
1. Bear-Flag Scenario: Chart A (also shown on the primary chart)
Notice how the VWAPs confirm the largely sideways ranging action. The VWAP from the all-time high and the VWAP from 2022 lows have been containing the price action YTD in 2023. Despite the gentle uptrend slope, the anchored VWAP from the all-time high reminds us of a more dynamic and flexible measure of trend, which is down from the all-time high in 2021.
2. Anchored VWAP from All-Time High: Chart B
The anchored VWAP from the all-time high remains formidable to price. Notice is power in resisting price up until now. However, the last rejection did not send price to new lows. This confirms the choppy sideways thesis for now. While the dark-blue VWAP from the ATH did reject price in April 2023, price has remained well above the anchored VWAP from the major June 2022 low. Currently, the ATH-anchored VWAP lies at $2,038. A close above this level suggests at least further upside in the near term. Traders of all time frames should keep this area in mind—it's sort of like a super-highway. You don't want to run out in the middle of it without looking carefully both ways.
The measured-move area is also shown here. Note that this is a logarithmic chart, so the measured move is somewhat higher than on a linear chart. This post will attempt to display measured moves on both.
3. Three Anchored VWAPS from Key Pivots: Chart C
The anchored VWAPs on this chart confirm the consolidation thesis discussed above. The VWAPs are anchored to key swing lows and highs since the all-time high. NOtice how the VWAPs from these various pivots have been compressing and flattening for months. This signifies another major trend move is likely to occur when this long-term consolidation completes. Many hope it will be an upward move back to highs. SquishTrade is less confident of that conclusion given inverted yield curves (see prior posts on this); however, over the coming weeks, maybe months, choppy to somewhat higher prices can occur.
4. Triangle Patterns within Triangle Patterns: Chart D
Triangles are consolidation patterns. The fact that we see triangle patterns within triangle patterns supports the idea that this 1-year channel is potentially consolidative of the move that preceded it. No guarantees, but that seems to be a logical inference. Some might counter that this is a major "cup base" though others may struggle to see anything resembling something that might hold one's tea. We'll see. Note: This is a linear chart, with a measured move based on the linear scaling.
5. Triangle pattern on a Logarithmic Chart: Chart E
This chart shows a triangle on a logarithmic scale. So now, switching to log scale doesn't necessarily change the thesis just yet. The measured move for the log scale gives a 1-year measured move off of June 2022 lows around $2467. If we extend the measured move to a 1.272 projection of the first leg off the June lows, then it runs up around $3000.
Long-term view summarized: As long as the uptrend from June 2022 lows holds, as well as the VWAP from that same bar, price can continue to remain supported, i.e., not crashing, sideways, rallies and dips within the defined ranges. In SquishTrade's view, $2,400 - $3000 is likely the maximum level ETH may achieve between now and the likely recession foretold by the yield curves. But higher-for-longer monetary policy in major European and North American countries may keep the ceiling even lower than that. Caution is warranted unless / until certain persistent (and 40-year record) yield curve inversions have proven that they finally gave a false signal for the first time ever.
Shorter-Term Commentary
Directional traders may be disappointed in the coming 2-3 weeks. A flag within a flag suggests more choppy price action overall—at least until a breakout of either occurs. The smaller flag may breakout first to the upside and lead us to the upper edge of the channel. The larger flag may breakout to the downside, and lead us to new lows. But neither has happened just yet. So price action for now may respect the ranges that are in play—both horizontal ranges and diagonal ones (channels). But it appears that price could largely could remain rangebound from a broader perspective for the coming weeks.
Conclusion
Traders and investors love a major directional move. It sparks adrenaline (maybe) and a combination of dreams / hopes or fears / frustration. Some traders wait eagerly at various levels to fade the move (long or short) once it has started to progress in earnest. Others who may have timed a good entry may be busy counting their profits, while trying to calm down enough to figure out a proper exit, and writing on their foreheads a reminder to "move the stop to breakeven." And still others may be sitting back patiently on the sidelines for months or years and hoping for an ideal capitulatory low after the dust has started to settle between buyers and sellers who may finally seem to have exhausted themselves.
In short, the confusion and choppiness of sideways to slightly upward price action is merely the market doing price discovery between all sorts of players including long-term underwater buyers who bought above 3500 and keep hoping the price will rise just enough to make them whole (increased supply), long-term holders who are true believers in the holding (reduced supply unless emotions shake them out), short sellers (supply and potential demand when a squeeze starts), derivatives traders (supply and/or demand due to hedging flow), intraday traders, scalpers, and, let's face it, some gamblers too. In general, the market action is a device for transferring wealth from the impatient to the patient, according to one investing legend, Warren Buffett. But sometimes the patient can be the short-term trader and the impatient can be the long-term investor—because a long-term investor may lack the patience to enter or exit properly, and a short-term trader may have the patience and discipline to execute some excellent swing trades, provided risk is managed and entries and exits are well-planned, well-timed and well-executed.
Minor disclaimer: This post is in no way advocating any particular investing or trading strategy. Short-term trading and long-term investing can both be either devastating or profitable (or somewhere in between those extremes) to the person engaging in it.
And thanks for reading this and for your encouragement and support.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
WTI: Crude Oil May Have Bottomed OutNYMEX: WTI Crude Oil ( NYMEX:CL1! ), Micro Crude Oil ( NYMEX:MCL1! )
The talk of inflation deceleration created a wishful misperception. Does a CPI read from 9.1% to 4.0% mean price relief for consumer? Certainly not. Something costed $1 last year will go up to $1.04 this year on average. What really comes down is the rate and the pace of price increase, but the absolute price level has forever gone up.
This makes the real decline in energy prices more extraordinary:
• On June 23rd, WTI crude oil ( NYSE:CL ) August futures settled at $69.16 a barrel. This is 44% below last June’s high of $123.70;
• At $2.44 a gallon, RBOB gasoline futures ( SIX:RB ) declined 34% year-over-year;
• At $2.37 a gallon, ULSD diesel futures ( EURONEXT:HO ) price dropped 45% YoY.
• At the retail level, the American Automobile Association reports the national average regular gasoline price at $3.57 a gallon on June 25th, down 27% YoY;
• The AAA diesel price is now $3.89/gallon, falling 33% YoY.
However, the era of low energy prices may be coming to an end. I am convinced that the market dynamic has changed. Elevated geopolitical tension, higher demand and a weak dollar could help pull crude oil out of the bottom, and onto an upward trajectory.
Global Tension Forms Solid Price Support
A week after the start of Russia-Ukraine conflict in February 2022, Crude oil futures shot up 30% from below $90 to $115. WTI peaked at $121 in June as the fighting continued.
Since then, high inflation and rate hikes raised the risk of global recession. As the demand outlook dimmed, oil price lost support and trended down in the past year.
Geopolitical tension may have been placed on the back burner, but it never went away. Last Saturday, the Russian private army Wagner Group mounted a short-lived rebellion against the Kremlin. What this means to the Ukraine conflict and the stability of Russia itself remain to be seen.
Geopolitical crisis could cause supply shock and raise the price of crude oil. My observation is that global tension will be at an elevated level throughout 2023 and 2024.
Oil Demand is Expected to Recover
Last July, I called the peak of gas price in this report. I discovered that record $5 gas had caused demand to fumble. AAA gas price surprisingly declined at the start of the traditional summer driving season.
Things look different now. Retail gas price creeped up 50 cents (+13%) since December. Many stations popped up gas price ahead of the July 4th holiday. With a still strong job market and inflation in check, consumers are taking their summer vacations.
A second key demand factor comes from the US government. The Biden Administration has drawn down the Strategic Petroleum Reserve (SPR) to fight high oil price in the last two years. The Energy Information Agency data shows that the SPR holds 350 million barrels of crude oil as of June 16th. This is 285 million barrels less than the level on January 24th, 2020, the week when President Biden first took office. SPR is now at a critical four-decade low level.
The Department of Energy has begun replenishing the SPR. It announced buying up to 3 million barrels in May, and recently planned additional purchase of 6 million in August.
Thirdly, the risk of global economic recession is now lower than what we previously feared. This is my most important reason for raising the outlook of future oil demand.
• The Federal Reserve implemented ten consecutive interest rate increases since March 2022. US inflation rate has declined from the peak of 9.1% to 4.0% in May. Lowering inflation may have averted the US economy from falling on a hard landing.
• The banking failures, from Silicon Valley Bank to Signature Bank, First Republic, and Credit Suisse, have met with swift government rescue efforts. We have so far managed to contain these from spreading to systemic risk.
• The resolution of US debt ceiling crisis helped avoid a US default and a likely global financial crisis it may trigger. According to the USDebtClock.org, the US national debt is now $32.1 trillion, which is $700 billion more than the previous debt limit.
• The Biden-McCarthy deal in federal spending limits ensures that government budget will not be cut. The federal government accounts for one quarter of the US economy. As bad as it may sound, government spending spree with borrowed money does contribute to near-term economic growth. We just kick the can forward and leave the debt burden to future generations.
A Weak Dollar Supports Higher Oil Price
Last year, the main investment theme of global commodities market was “Strong Dollar, Weak Commodities” and “High Rate, Low Price”. We are now in a reverse course.
The US dollar index peaked at 114 in last September. While the Fed raised rates aggressively, other countries were slow in response, resulting in widening interest rate spreads between the US dollar and major foreign currencies. Since then, the Fed reduced the size of rate hikes from 75 bp to 50 and then 25, while UK and ECB caught up with bigger rate increases. The dollar index has fallen to 100 by April.
The Fed paused rate increase in its June meeting. Although it emphasizes in fighting inflation, there is no question that the monetary tightening cycle is now in its last stretch.
NYMEX WTI Crude Oil Futures
With the key factors discussed above, plus the OPEC having incentive to cut output, I could see WTI going back to the $80-$90 range.
December WTI (CLZ3) currently quotes $69.1 a barrel. Each contract has a notional value of 1,000 barrels. Margin requirement is $5,000 to place one contract.
Hypothetically, if Dec futures goes up to $80, one long contract would gain $10,900 (=10.9*1000). Theoretical return would be +118% (=10,900/5,000-1), excluding transaction fees.
The risk of long WTI is falling oil price. If CLZ3 falls to $65, a long position would lose $4,100. This would result in a Margin Call, with the Exchange requiring the trader to deposit fund and bring the account balance back to $5,000.
Alternatively, we could consider the Micro Crude Oil Futures ( CSE:MCL ). Contract size is one tenth of the standard CL contract. And so is the margin requirement. Everything else works the same.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
AI Hype is not different from EV Hype!In the past 2 years, 5 EV companies have lost 800 billion dollars of their market cap!
Today, the aggregate market cap of the top 60 companies is $2.229 T.
Long-term investors in TSLA, NIO, RIVN, LCID, and XPEV have lost money equal to Toyota, Porsche, BYD, Mercedes-Benz, BMW, Volkswagen, Ford, and Ferrari combined!
The market always punishes people for FOMO..!
The AI hype will have the same future, I have no doubt!
Compare the NVDA balance sheet with TSLA and you will see what you should visit!
If you have doubts check how many SHORT Analyses I have published in the past 2 yeas for these tickers!
I have published 122 short analyses in the past 30 months for the top-mentioned EV makers!
Peeking into Super SevensIn our previous paper , we outlined how investors can use CME's Micro S&P 500 Futures to hedge beta exposure and extract pure alpha.
The paper referenced that the Super Sevens stocks (Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla) will continue to outperform the broader S&P 500 index. Not only do these stocks benefit from passive investing and ESG investing, these firms also have solid fundamentals to back up their gargantuan valuations.
Each of the firms in the Super Sevens offer unique value drivers. Each firm is a market leader in its space and has demonstrated resilient earnings capacity and solid growth potential. Still, each also has its own set of risks. Notably, with the Super Sevens the value drivers outweigh the potential risks.
AMAZON
VALUE DRIVERS
• Blistering profits from AWS offering with dominant market share of 33%.
• Market dominance in e-commerce and solid supply chain network.
• Successful new categories: Kindle (publishing), Alexa (voice assistant), and Prime (video streaming).
POTENTIAL RISKS
• Heavy reliance on AWS for profits. Slowing growth in AWS due to slowdown in corporate IT spending.
• Low profit margins in e-commerce business. Slowing growth due to lower consumer spending.
• Rising competition in cloud services and e-commerce.
ANALYST PRICE TARGETS
• Across 54 analysts providing a 12-month price target, 42 (77%) having a strong buy rating, 7 (13%) of them have a buy rating, 4 (7%) suggest a hold, while just 1 (2%) has a strong sell rating.
• Average 12-month price target stands at 137, with a maximum of 220 and a minimum of 85.
TECHNICAL SIGNALS
• Technical signals point to momentum deeply in favour of Amazon shares. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a buy.
APPLE
VALUE DRIVERS
• Product category definers. Dominant and still growing iPhone demand.
• Solid eco-system which is extremely hard to displace.
• Control over both software and hardware enables specialized tailored improvements.
• Sticky services such as App store, Apple Pay, and potentially Apple BNPL.
POTENTIAL RISKS
• Apple is heavily reliant on external fabricators exposing it to supply-chain bottlenecks.
• Heavily dependent on iPhone sales.
• Rising dependence on future growth in unexplored new categories.
ANALYST PRICE TARGETS
• Across 42 analysts providing a 12-month price target, 22 (52%) having a strong buy rating, 6 (14%) of them have a buy rating, 13 (31%) suggest a hold, while just 1 (2%) has a strong sell rating.
• Average 12-month price target stands at 187, with a maximum of 220 and a minimum of 140.
TECHNICAL SIGNALS
• Technical signals point to solid momentum favouring long position in Apple shares. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a strong buy despite Apple trading at near its all-time-high.
GOOGLE
VALUE DRIVERS
• Google is the dominant search engine (86% market share).
• Phenomenally successful and effective ad-targeting capabilities.
• Heavy investments in future innovation enabling leapfrog into new verticals such as Android, Waymo (FSD & Maps).
• Successful early acquisitions such as YouTube, Android, Applied Semantics & DoubleClick (AdSense), Nest (Home Automation).
POTENTIAL RISKS
• Massive reliance on ad revenues via search for profits. Slowing ad spend as firms cut back on spending.
• Non-trivial dependence on cloud revenue for growth exposes them. Slowing cloud revenue growth due to lower corporate IT spending.
• Failure to expand into new domains such as social media, wearable tech, and gaming.
ANALYST PRICE TARGETS
• Across 52 analysts providing a 12-month price target, 40 (77%) having a strong buy rating, 7 (13%) of them have a buy rating, while 5 (10%) suggest a hold. None of the analysts have a sell rating.
• Average 12-month price target stands at 131, with a maximum of 190 and a minimum of 100.
TECHNICAL SIGNALS
• Technical signals point to decent momentum favouring Google shares but prices are at tiny risk of oscillating downwards. Oscillators point to neutral while Moving averages point to a strong buy.
• In aggregate, technical signals point to a buy.
META
VALUE DRIVERS
• Market monopoly on social media with high penetration across global markets on multiple platforms.
• Flagship Facebook platform continues to see growth with 2.9 billion monthly active users (MAU).
• Successful acquisitions have provided them with a wide suite of social media platforms – WhatsApp (2 billion MAU) and Instagram (2 billion MAU).
• Successful developer tools (Graph, Hydra, React) have allowed them to build useful SDK (Software Development Kit). Potential sources of enterprise revenue from these.
POTENTIAL RISKS
• Increasing competition from TikTok.
• Privacy concerns have a direct revenue impact e.g., Apple’s new privacy policies.
• Falling market share for flagship Facebook in advanced economies.
• High reliance on ad-sales. Slowing ad sales as firms cut back on spending.
• Shaky bet on the Metaverse which is starting to fade.
ANALYST PRICE TARGETS
• Across 60 analysts providing a 12-month price target, 39 (65%) having a strong buy rating, 7 (12%) of them have a buy rating, 10 (17%) suggest a hold, 1 (2%) sell rating, and 3 (5%) has a strong sell rating.
• Average 12-month price target stands at 281, with a maximum of 350 and a minimum of 100.
TECHNICAL SIGNALS
• Technical signals point to decent momentum favouring Meta shares. Oscillators signal neutral indicating a tiny risk of shares shedding gains while Moving averages point to a strong buy.
• In aggregate, technical signals point to a buy.
MICROSOFT
VALUE DRIVERS
• Sheer dominance of Windows (74% market share) & MS Office.
• Deep roots in MS Office enables the firm to straddle across consumers & enterprise.
• Diversified software offerings - cloud (Azure), gaming (Xbox), enterprise (Windows Server and SQL), search (Bing), productivity (Office), collaboration (Teams), and AI (through Open AI's ChatGPT).
• Active M&A activity to acquire assets - LinkedIn, OpenAI, GitHub, Skype, Mojang, Nokia, Activision-Blizzard (Pending).
• Besides Windows, Microsoft controls dev frameworks such as .Net further strengthening their grasp on SW dev.
POTENTIAL RISKS
• Limited success in hardware offerings unlike Apple.
• Multiple major acquisitions have fizzled – Skype and Nokia.
• Limited adoption in enterprise software.
ANALYST PRICE TARGETS
• Across 51 analysts providing a 12-month price target, 37 (73%) having a strong buy rating, 6 (12%) of them have a buy rating, 7 (14%) suggest a hold, while just 1 (2%) has a strong sell rating.
• Average 12-month price target stands at 345, with a maximum of 450 and a minimum of 232.
TECHNICAL SIGNALS
• Technical signals point to decent momentum favouring Microsoft shares. Oscillators are at neutral while Moving averages signal a strong buy.
• In aggregate, technical signals point to a strong buy.
NVIDIA
VALUE DRIVERS
• Market dominance in discrete GPU’s (80%).
• Early mover in AI hardware which gives them a lead over the competition.
• Raytracing, DLSS, Neural Network cores.
• Nvidia’s CUDA is the primary choice for training ML models.
• Market dominance in high-growth data centre graphics hardware (95%) and super-computing hardware.
• Successful enterprise partnerships – car manufacturers using Nvidia software.
• Emerging tech such as AI and VR require more graphics intensive processing driving demand for Nvidia’s products.
POTENTIAL RISKS
• Hardware-focused business model exposes it to supply-chain risks and bottlenecks.
• Extremely high P/E of 225 dependent upon expectations of future growth in AI.
• Losing market share in discrete GPUs and enterprise GPUs to AMD and Intel.
ANALYST PRICE TARGETS
• Across 50 analysts providing a 12-month price target, 36 (72%) having a strong buy rating, 6 (12%) of them have a buy rating, 7 (14%) suggest a hold, while just 1 (2%) has a sell rating.
• Average 12-month price target stands at 444, with a maximum of 600 and a minimum of 175.
TECHNICAL SIGNALS
• Technical signals point to solid momentum favouring long position Nvidia shares. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a strong buy despite Nvidia relentless and unrivalled price ascent.
TESLA
VALUE DRIVERS
• Early mover in EV’s with dominant market share in US (62%).
• Dedicated and loyal customer base.
• Vertical integration of EV value chain allows it to reduce reliance on external suppliers.
• Early investment in large factories that will allow them to scale output more efficiently.
• Huge and monetizable supercharger network by opening it up to other EV makers.
• Subscription model for software enables revenue generation after product sale.
• Long term vision has allowed Tesla to create entirely new products such as supercharger network, battery banks, home power backup and solar roofs.
• Tesla’s planned Robotaxi and entry into car insurance can be hugely disruptive.
POTENTIAL RISKS
• Increasing competition from automobile majors as well as Chinese EV firms.
• Tesla’s brand is deeply entangled with Musk’s reputation.
• Dependence on government incentives to make Tesla affordable.
• Continued access to battery metal minerals.
• Ongoing and unresolved production scaling challenges.
ANALYST PRICE TARGETS
• Across 46 analysts providing a 12-month price target, 18 (39%) having a strong buy rating, 5 (11%) of them have a buy rating, 17 (37%) suggest a hold, 1 (2%) has a sell rating, and a 5 (11%) hold a strong sell rating.
• Average 12-month price target stands at 201, with a maximum of 335 and a minimum of 71.
TECHNICAL SIGNALS
• Technical signals point to solid momentum favouring Tesla. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a strong buy.
SUMMARY
The Super Sevens are well positioned to continue outperforming the wider market. As mentioned in our previous paper , investors can use a beta hedge to nullify the effects of the broader market (S&P 500) and extract pure alpha from the growth of the Super Sevens.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
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Will Palladium Slide Down To $1000?Palladium, which hit an all-time high of $3433 in March 2022, has since experienced a major downturn, plunging below the $3000 support level and losing 34% of its peak value by the end of that month.
The downward trend persisted throughout 2022, breaching the critical $2000 level in October.
A significant bearish move in February 2023 further pushed the price below the $1543 support level from December 2021, turning it into a formidable resistance level.
This has led to a further drop to a four-year low of $1305.
Now, with a total decline of over 58% from its all-time high, palladium may continue to fall towards the $1000 mark unless buying sentiment changes.
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Take Two | TTWO & GTA VIIs TakeTwo Interactive Software Fairly Valued?
We use what is known as a 2 stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Present Value of 10-year Cash Flow (PVCF) = US $9.1b
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.2%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.5%.
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$27b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$139, the company appears about fair value at a 14% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Take-Two Interactive Software as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.5%, which is based on a levered beta of 1.071. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Take-Two Interactive Software, we've put together three pertinent items you should explore:
Risks: To that end, you should be aware of the 1 warning sign we've spotted with Take-Two Interactive Software
Future Earnings: How does TTWO's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
long story short
Using the 2 Stage Free Cash Flow to Equity, Take-Two Interactive Software fair value estimate is US$162 and with US$138 share price, Take-Two Interactive Software appears to be trading close to its estimated fair value
OPEC tries hard to push the oil price higher but unsuccessfullyIn the past two months, there were several exciting trading opportunities in the oil market amid speculation about the United States seeking to refill its Strategic Petroleum Reserves (SPR) and OPEC taunting more production cuts to propel the oil price higher. However, despite much of the talk among U.S. officials, the SPR continued to be drawn, with the crude oil stock being reported at 351.69 million barrels on 9th June 2023. Furthermore, against the wishes and actions of OPEC, the oil price failed to rise significantly. Though, this story has been playing out for much longer than just in the past two months. The cartel agreed to slash production by 2 million barrels per day starting in November 2022, then extended cuts in early 2023, and most recently, Saudi Arabia (the second largest oil producer in the world) announced a voluntary cut of 1 million barrels per day starting in July 2023. As a result, Saudi Arabia’s oil production is estimated to amount to approximately 9 million barrels per day by the end of July 2023. That would represent about a 17% decline in the country’s output versus August 2022 level of production (when it stood at 10.9 million barrels per day); as for the entire organization, its output fell from nearly 29.4 million barrels per day in the third quarter of 2022 to only slightly more than 28 million barrels per day in May 2023 (representing approximately 4.7% decline in the period). In the meantime, U.S. field oil production kept growing, from 12 million barrels per day in August 2022 to almost 12.7 million barrels per day in March 2023, amounting to about a 5.8% increase (and 11.7% growth since January 2022). So, it seems that regardless of how hard OPEC is trying to push the price higher, the United States just reverts to releasing more petroleum reserves or ramping up production to offset the cartel’s ambitions.
Illustration 1.01
Illustration 1.01 displays the daily chart of USOIL and simple support/resistance levels.
Technical analysis
Daily time frame = Neutral/Slightly bullish
Weekly time frame = Neutral
Please feel free to express your ideas and thoughts in the comment section.
Predicting Crypto's Journey Amid LawsuitsBefore anyone reads this idea, I'd recommend reading my previous two ideas about Coinbase and Grayscale. Definitely worth the read to get a better grasp of the current situation. The main ideas I will analyze are that the SEC suing Coinbase and Binance are the final things that had to happen before a Bitcoin ETF would be approved and that the SEC could lose some of its court battles against crypto companies. Then I will close with some solid technical and fundamental analysis of the current price action.
Wall Street Interests and the SEC's Anti-Crypto Native Firms Stance
The SEC seems to be trapped, as it has too many court cases open and won't be able to win all of them. It's currently struggling against Coinbase and its demands for clear regulations and, in its case against Grayscale too, which seems to be doing well in court. Against Grayscale and Coinbase, the SEC's cases are very weak. It's clear that the SEC was just stalling everything and damaging the US industry in the short to medium term so that the TradFi guys could take control. Now they've reached their limit, as the industry is coming together and attacking it en mass. The political pressure against the SEC has been mounting, which is why Blackrock has filed for its Bitcoin ETF. It's no coincidence that TradFi firms are coming out after the recent lawsuits and talking about how they want to get involved. The CFTC approved futures related products for Coinbase and the Cboe, confirming that other major players might want to be engaged at a higher level. Essentially it's not the SEC being anti-crypto; it's just the SEC being anti-crypto native firms and wanting to pave the way for Wall Street.
Securities, Market Manipulation, and the Complexities of SEC Approval
What's been super clear is that BTC isn't a commodity; however, for an ETF to be approved, the SEC had to deal with all shady exchanges and practices in the US. It would be impossible for them not to have dealt with Binance before approving an ETF. To me, it's clear that many of the services Coinbase and Binance are offering are securities, and it's also been clear that Binance has done many shady things in the past. The main issues for the SEC to approve an ETF would be that these exchanges would be trading securities along with Bitcoin, and market manipulation or an FTX-like collapse would create many issues. What is positive for Coinbase and Binance, though, despite my opinion about what is a security and what is not, is that the SEC approved of Coinbase's business model before it went public and that to this day, it still doesn't offer clear guidance for crypto firms.
Anticipated SEC Lawsuits and the Impact on Coinbase and Binance
Something significant to note is that nothing that has happened with Coinbase and Binance wasn't expected. We've had so much news about the SEC potentially suing both that it was almost priced in. Alts clearly got shocked, and they might feel even more pain if the SEC wins against Ripple, as some will probably be deemed securities. Yet beyond that, I don't think the SEC will get everything it wants. It has failed so spectacularly that the US judges won't be able to give it all it wants. It might have some wins, but overall, there is no way that it can damage the US industry too much. Of course, it can deal substantial damage; however, even if the SEC itself can't, the big players behind Blackrocks ETF might find other ways to shake out the weak hands before taking the market higher.
The Dawn of a New Era: A Turning Point in Crypto Regulations
It appears that we've reached a turning point in crypto regulations. It's unlikely that regulations could get any worse from here, which is a positive sign for the market. We're currently facing an environment with almost no significant regulatory risks, only potential regulatory upsides. The crypto market has demonstrated incredible resilience, adapting and evolving in ways that make it less susceptible to regulatory hindrances. The SEC is under increasing pressure to clarify its stance on crypto regulations, while other countries are stepping up and providing more precise guidelines, attracting a growing number of crypto businesses. This trend fosters the expansion of exchanges outside the US and the development of more favorable regulations for the crypto space. In my opinion, we will have regulatory clarity in the US by the end of the year.
An Outlook on the Crypto Market: Positive and Negative Factors
Some positives are 1. China is pumping liquidity into its economy, and as Hong Kong has just opened its doors to crypto, some of that liquidity will flow into crypto, 2. Celsius might convert alts into BTC and ETH (directing liquidity to these two), 3. Voyager distributing cash to creditors (some will go back into crypto), 4. FTX 2.0 is in the cards, which means that 2B USD could come back to the market, along with several altcoins that could be converted into BTC & ETH (FTX & Alameda don't have much BTC or ETH).
Some potential negatives are 1. Mt.Gox, Bitfinex & US Gov distributing/selling their BTC, 2. Bankrupt companies selling their coins/tokens, 3. Gemini/DCG going bankrupt and forced to be liquidated, 4. More lawsuits and losing court battles, 5. Stock market collapse.
Uncertain Stock Market Conditions and Crypto Performance
Number 5 is something I would like to clarify here, as stocks may have topped. Nothing is certain, but we need to be aware of the situation. Yesterday we had a Triple Witching (a term used in the stock market to describe the simultaneous expiration of three different types of derivative contracts, namely stock options, stock index futures, and stock index options, all on the same trading day. This happens four times a year, on the third Friday of March, June, September, and December.), and we will have a three-day weekend.
This is the perfect setting for a top, especially as SPX has hit SPX hit 4450 and my BBs with STD 3 upper band, Nasdaq swept its Q1 2022 highs, and Russell 3000 the breakdown zone, while all are extremely overbought. Yields keep going higher, as Oil, Natural Gas, Wheat, Corn, etc. show strength, which could push rates and the dollar higher, and therefore risk assets could have a dip. Finally, based on some sentiment-related data, we could be close to an extreme point in stock prices. In my opinion, this is not the time to take excessive risks but the time to take profits on stocks.
That doesn't mean crypto will collapse, as crypto has been underperforming for months and usually moves along with stocks. Therefore, if it were to simply catch up with tech stocks, 33k would be an easy target. The best way to express bullishness in the long term is to bet on BTC, ETH, GBTC, and COIN, and I would avoid any other coins for now.
Technical Analysis
GBTC had a massive collapse, its discount was near 50% (relative to BTC), and it rallied to fill a major gap. Filled the gap, had a correction, retested the breakout zone, bottomed there, and is now going up. If someone buys GBTC here, they will make 75% extra on their trade when that discount closes relative to how much they would have made by simply holding BTC.
BITO was down 25%. Partially filled an FVG on a gap down and bottomed there. It has several gaps to fill higher, but only a few lower. The gaps higher are pretty important, as some of them are double/triple gaps (gaps within gaps), making them more critical.
BTC and ETH on CME have some important gaps higher that could be acting like magnets, but both are at resistance now. BTC is at the horizontal and Fibonacci pivot resistance combo, while ETH is testing its critical breakdown zone.
Overall, Bitcoin has some double/triple tops higher or FVGs, which is liquidity ready to be tapped. However, that holds for levels lower too. The most important levels right now are 27500, 30000, 33000, 35300, and 37500 to the upside and 22600, 21000, 18500, 14000, and 12500 to the downside.
Bitcoin seems to have formed the perfect bottom after it formed two double bottoms, one at 25800 and one at 25350, both of which got broken slowly, and the final leg down hit the 25200 breakout zone. It actually fell below 25000, which was a round number, and trapped shorts, which thought the break below 25000 would be very bearish.
Finally, it also seems to be within a massive falling wedge, but it's unclear which direction it will take. There is a potential trap in either direction, so I wouldn't want to read too much into it. My view is that someone should respect all the levels I have mentioned and potentially take profits or place entries for short to medium-term trades on them.
Bitcoin Halving Fib EstimationHere we're dealing with fib levels derived from macro low & high price levels, specifically covering historic ATH levels.
Log scale on because we put emphasis on chart-based A/D in percentages.
Identifying critical points of fractal starting from times of eye-catching volatility and perceptible cycles.
We start with fib coverage of ATHs chronologically:
1st pair interconnected:
Added layer of 2nd pair interconnected:
Covid low - current ATH interconnectedness:
Zeroing in -77% drop:
Since we care about reducing subjectiveness in Fractal Analysis, we must place Fibonacci Channels on pin point accuracy (0;1). It is done so because of various concepts considering irrational market, uncertainty and assumption that nobody can be always right predicting market with regular TA. Since popular TA is already used among millions of traders, we definitely can't be competitive if we stick to common knowledge of standard wave counts, etc.
Fractal analysis summarizes collective market in terms of interconnectedness of the whole structure with composite short and long term cycles. Here we care about if the Golden Rule behind the waves allows for any desired move.
Since human nature and decision making even outside of trading is determined by golden rule (bench experiment, DNA, proportion of body and organs). Knowing that Fibs are pleasing proportion for a consciousness. We can use this rule against the market since we're dealing with mass consciousness. Activity of which will draw patterns in respect to those proportions anyway. So our task is to expose the levels derived from actual structure to which price has reacted throughout the history.
That way fibonacci is tuned into the chaotic nature of the market, hence-fore it is capable of determining key price levels of support and resistance without use of subjective measurements.
It doesn't yet mean this is the only tools I use for trading. This just something I consider for long-term perspective derived from historic structure. Just like in QM, we can't tell the exact location of particle, but we can tell the probability where it most likely might end up. In FA probability of levels is priced at fibs.
Will AI workloads consume all the world’s energy?On big questions like this, almost nothing stays constant. When we consider a new technology:
We cannot assume that rates of adoption or usage will remain constant—they may drop, they may even grow.
We cannot assume that the technology supplying our energy needs will remain constant—there could be breakthroughs in efficiency or changes in the overall energy mix.
We cannot assume that the efficiency of the specific technology being adopted will remain constant—we have seen numerous examples of areas where an initial version of something in technology or software faces subsequent improvements that may give it greater capabilities with lower energy usage.
We must also recognise that artificial intelligence (AI) itself could suggest improvements in energy efficiency for specific applications—like the heating and cooling of a building. Therefore, any analysis of energy usage and AI must recognise that the one constant will be change.
Environmental impact of select large language models (LLMs)
LLMs have been garnering the lion’s share of attention amidst the current excitement around generative AI. It makes sense to consider the amount of carbon emissions generated by some of these systems. The Stanford AI Index Report, published in 2023, provided some data, noting that factors like the number of parameters in a model, the power usage effectiveness1 of a data centre, and the grid carbon intensity all matter.
Considering power consumption of an LLM
Those building different LLMs have many levers they can pull in order to influence different characteristics, like energy consumption. Google researchers proposed a family of language models named GLaM (Generalist Language Model), which uses a ‘sparsely activated mixture of experts’. While a full discussion of how that type of approach works is beyond the scope of this piece, we note that the largest of the GLaM models has 1.2 trillion parameters. Knowing solely that data point, the assumption would be that this model would consume more energy than any of the models.
In reality, the GLaM model with 1.2 trillion parameters consumes only one-third of the energy required to train GPT-3 and requires only half of the computation flops for inference operations. A simple way to think of what is going on is that, while the total model has 1.2 trillion parameters, a given input token into the GLaM model is only activating a maximum of 95 billion parameters, that is, the entire model isn’t active across all the parameters. GPT-3, on the other hand, activated all 175 billion parameters on each input token3. It is notable that, even if measuring the performance of AI models occurs on many dimensions, by many measures the GLaM model is able to outperform GPT-3 as well4.
Conclusion
The bottom line is that model design matters, and if model designers want to denote ways to maintain performance but use less energy, they have many options.
Sources
1 Power usage effectiveness (PUE) is useful in evaluating the energy efficiency of data centres in a standard way. PUE = (total amount of energy used by a computer data centre facility) / (energy delivered to computer equipment). A higher PUE means that the data centre is less efficient.
2 Source: Du et al. “GLaM: Efficient Scaling of Language Models with Mixture-of-Experts.” ARXIV.org. 1 August 2022.
3 Source: Patterson, David; Gonzalez, Joseph; Hölzle, Urs; Le, Quoc Hung; Liang, Chen; Munguia, Lluis-Miquel; et al. (2022): The Carbon Footprint of Machine Learning Training Will Plateau, Then Shrink. TechRxiv.
4 Source: Du et al, 1 August 2022.
The AI led correctionI still believe a correction is coming and I believe tech will outperform to the downside once again. In the video I look at various megacap stocks and show how many of them are at important resistance levels. Could we sell off and go higher anyway? Yes. Could we ignore all of these indicators and levels and just blow up through them? Yes, possible but not likely.
For me, this is an area to accumulate shorts on tech, but not everyone is going to agree with it.
Technically it makes sense and I believe with all the constant AI talk, psychologically it makes sense as well.
Good luck!
Artificial intelligence: signs of acceleration in 2023“One final investment area that I’ll mention, that’s core to setting Amazon up to invent in every area of our business for many decades to come, and where we’re investing heavily, is Large Language Models (“LLMs”) and Generative AI. Machine learning has been a technology with high promise for several decades, but it’s only been the last five to ten years that it’s started to be used more pervasively by companies. This shift was driven by several factors, including access to higher volumes of compute capacity at lower prices than was ever available. Amazon has been using machine learning extensively for 25 years, employing it in everything from personalised ecommerce recommendations, to fulfillment center pick paths, to drones for Prime Air, to Alexa, to the many machine learning services AWS offers (where AWS has the broadest machine learning functionality and customer base of any cloud provider). More recently, a newer form of machine learning, called Generative AI, has burst onto the scene and promises to significantly accelerate machine learning adoption.”
Amazon.com CEO Andy Jassy1
When Amazon’s CEO makes such a statement, we pay attention. In 1997, Amazon.com had revenues of $147.8 million; in 2022, this figure was $434 billion for Amazon’s consumer business. Amazon Web Services was conceptualised in 2003, with the first services launched in 2006 and, in 2022, generated $80 billion in revenues.
Elsewhere, The Stanford AI Index Steering Committee, Institute for Human-Centered AI (one of the best annual resources on artificial intelligence), have also just released a new report. Artificial intelligence (AI) is, undoubtedly, a big topic in 2023, and this report provides an excellent resource for understanding how it is progressing. The full piece is almost 400 pages, but we wanted to highlight some key points.
ChatGPT was not the only big AI development of 2022
On November 30, 2022, ChatGPT was launched, but the Stanford AI Index report helps us remember other notable events in 2022. Our 5 favourites:
February 16, 2022: DeepMind trained a reinforcement learning agent to control nuclear fusion plasma in a tokamak2. While this doesn’t mean that fusion powerplants are immediately around the corner, it does show a notable use case for AI to help scientific research in a very, very difficult area.
April 5, 2022: Google released its PaLM large language model with 540 parameters. This was an important step, showing that one avenue to improve the performance of these models was to simply train them on more data. As of this writing, we do not know how this figure compares to the number of parameters in use for OpenAI’s GPT-4.
May 12, 2022: DeepMind showcased Gato, which is a model that can generalise across such activities as: robotic manipulation, game player, image captioning, and natural language generation.
June 21, 2022: GitHub makes Copilot available as a subscription-based service for individual developers. Copilot is a generative AI system that can turn natural language prompts into coding suggestions across multiple languages.
July 8, 2022: Nvidia uses reinforcement learning to design better-performing GPUs, accelerating the performance of its latest H100 class of GPU chips.
Insights on global corporate investment
AI has been one of the hottest areas for corporate investment, but Figure 1 shows the total level of investment shifted downwards, from $276.14 billion to a level of $189.59 billion in 2022 with the market volatility.
The two biggest categories comprising the level of AI investment recently has been ‘Merger/Acquisition’ and ‘Private Investment.’ Both of these categories dropped significantly from 2021 to 2022, but this is not surprising in that both of these would be expected to slow in a less certain economic environment with the US Federal Reserve quickly raising the cost of capital.
One of the most informative charts in the 400-page report is the specific focal areas of investment, and how they have changed.
‘Medical & Healthcare’ was the biggest focal area in 2022, after being second biggest in 2021, trailing only ‘Data Management, Processing and Cloud.’
‘Cybersecurity, Data Protection’ was the fourth biggest investment area in 2022 and the largest that saw an acceleration in investment, meaning investment in 2022 was actually larger than in 2021. The Russia/Ukraine conflict in 2022 created a big focus on cybersecurity.
There is little question, the first four months of 2023 have seen a massive focus on AI, and a massive focus usually leads to at least some hype and some risk of near-term overvaluation. Sometimes this is the nature of thematic investment—we all want something to get excited about, especially if economic growth and geopolitics are less positive. What is emphasised in the letter from Amazon.com CEO, Andy Jassy, and then measured in the 2023 Stanford AI Index report, is that the AI megatrend is continuing to grow and increase in its impact on society and on businesses.
Sources
1 Source: aboutamazon andy-jassy-2022-letter-to-shareholders
2 A tokamak, put simply, is somewhat of a doughnut in shape and is a device used to contain the plasma in a fusion reaction.
Tesla – a momentum juggernaut with AI qualities We’ve just seen Tesla push higher for a 13th straight day and signs are it could rally for a 14th.
This is obviously an incredible run of form, especially as there simply haven’t been any positive earnings revisions – however, earning aside, investors have seen a 70% return since May (110% YTD), and the stock is hot, but is it too hot?
Fundamentally, we’ve seen positive tailwinds from the news that GM and Ford are moving their EVs to utilise Tesla’s Supercharger, as well as tax breaks for owners of the Model 3.
Tesla is seen foremost as an AI business
Arguably, the key fundamental reason is the market treating Tesla as an AI business, rather than a high-tech EV/auto business. Importantly, Tesla is not the only auto business evolving like this and buying chips from Nvidia, but they have first movers’ advantage and traders like the liquidity and ease at which they can trade the flow – either through direct equity or through optionality.
Recent intel shows Tesla is buying Nvidia chips for their data centres, and as they strive to improve the safety and reliability of their autonomous cars, Nvidia’s chips help train their models and increase computing processing capabilities.
There has been investor focus on the demand for Nvidia’s chips that are central to the evolution that is playing out in ‘Software-Defined Vehicles’ – Tesla first pioneered this scene in 2012, but now Nvidia is helping to take this forward. This article explains it well (www2.deloitte.com) but the idea of having a chip in a centralised computer that can be upgraded – just as a phone can, will appeal to many. In theory, it will only increase the vehicle’s performance and offer the user greater comforts without expensive purchases and trips to the garage.
It seems the market is being educated on this now.
Momentum is a clear driving force
Aside from the AI tailwinds, there is an out-and-out momentum play here. Traders want to buy what is strong and then ultimately sell at higher levels. The options crowd buy upside calls (slightly out-of-the-money) and as the price moves higher options dealers (who sold the calls) must hedge their exposure – they do that by buying Tesla’s stock and this just perpetuates the move higher. There is also limited supply, with few looking to sell.
I see some technicians screaming that Tesla has an RSI of 88, suggesting an imminent collapse. To me, it suggests the risk/reward trade-off is certainly turning and putting new money to work at these levels carries a higher risk. One can buy and hope it kicks further but be quick to cut any loss.
Shorting has hurt and many will want higher conviction in the price action to reload. Of course, at some stage, a fraction of the fast-money players will bank some profits, and that is where the opportunity is for the short sellers, especially the day traders - if the algo’s sense the sellers are finally out there then it may see a more protracted sell-off.
Personally, I would stay with the momentum and look to buy weakness – the market still has more to explore on the AI front.
PS analyst - Chris Weston
CNHJPY - Massive SHORT!! The pair that just keeps on giving ...... and giving, and then give some more.
Should one lack the inclination to deal with everyday FX volatility (or with the lack thereof) then this is the pair to be SHORT , in George Foreman style, ala; "Just set it and forget it!"
Simply put, China's absolute best hope (just a dream, really) to survive it's oncoming demographic (industrial, deurbanization, and ... ) collapse to somehow muddle through one of it's worst decade and a half well under way, to transition through total "Japanification". (This is only a hope, requiring lots and lots of luck to pull it off.)
This is undeniably China's best possible future scenario, all else being a far inferior outcome.
Consequently, as Japan is snapping out of it's 30 year slumber just as China "hopes" to achieve Japanification, this pair (provided any future convertibility of the Yuan) will mirror that process, obviously like no other.
E.g. SELL it (Short) for good! (through about 2035 and possibly beyond.)
Here is the Weekly;
SHORT it anywhere here!
p.s. The scenario outlined in the main (monthly) chart is only a near-term outlook (12-15 months out), severely understating the potential ultimate (Short) mileage in this pair.
