AI and Crypto. Going parabolic, but for how long?
Breakout by Philo, Issue #2
I sent out the first issue of Breakout in January here, it was free for all.
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In late December I announced my intention to launch Breakout by Philo, a section of Philoinvestor that would fully focus on analysing markets from a technical perspective.
My goal with Breakout will not be to “predict” markets — but rather to listen to them intelligently.
Considering how complicated the current setup is — with all the macro and geopolitical issues around us, one could always use technicals to listen to the markets for help in his decision making.
Having said that, whether times are bad or good, technicals can always help!
Personally, I started out in markets with technical analysis — then moved on to fundamentals, and then shortly thereafter added macro on top.
In the past few years I could have listened to technicals in many occasions to make better decisions, but ignored it and sided with fundamentals 100%. However we all know markets don’t follow fundamentals perfectly. Even George Soros thinks so.
“Scientific method seeks to understand things as they are, while alchemy seeks to bring about a desire state of affairs. To put it another way, the primary objective of science is the truth - that of alchemy, operational success.”
—George Soros
From Shadows & Traps. I recommend you all read it.
If you are a macro guy, you only see macro and economic figures. If you are a technical analyst, you think charts are the only truth. If you are a fundamentally-oriented investor, you think only your company’s fundamentals should influence price. No.
If your perspective is limited, you only know what you see. This is the trap that macro-intellectuals fall into, they only know economic theories, news and economic figures. They end up believing their own theories and for them — those things must happen, they must play out.
Every additional data point is used to confirm their biases and pre-conceived notions. Then, when their thesis doesn’t play out they move the goal posts and find excuses.
Breakout, Issue #2
What’s the setup in March 2024?
The SPX and the Nasdaq have been rallying since late October, at first on the back of falling inflation and expectations of the Fed lowering rates within 2024, but since January simply on the back of the AI-everything cycle.
The infamous ARKK not having managed to benefit materially from the AI rush, peaked in December 28th and has been sideways since. The Russell 2000 is up 3% YTD, also not having benefited from AI.
I say this to remind readers that the rally is not broad based, and that the two major indices benefited from the reasons I outline in the piece below. Namely Hyperscalers investing in AI initiatives, Semis benefitting, and major corporates needing to jump on the AI bandwagon as well… (Just read the below)
Let’s start with Crypto
After a sell-off in the first days of the year, BTC caught a bid late January and has been rallying since, going from 40k to 70k in a 5 weeks — and taking all crypto with it for the ride.
As explained in the previous issue of Breakout, the setup here seems to be the SEC approval of Crypto-related ETFs that induce FOMO into the heart of speculators and degenerates alike, looking to make a quick buck.
This cycle of ETFs buying Crypto —> and Crypto going up because ETFs buy Crypto etc., is underpinning this run. The weekly chart below shows a parabolic move on BTC that generated an 85ish% return in a few weeks. But financial markets are not like physics — this does not indicate a force!
This could hit a wall and reverse, once more. CAVEAT EMPTOR.
For the record, if I was long BTC and really wanted to milk this move, I would look for a failure of the EMA10 to start offloading. While I don’t feel it, this could indeed hit $100K. Removing all guesswork and focusing purely on technical setups, this is how I would play it. Obviously this is not investment advice and nothing here is.
Here’s a daily chart of BTC surfing the EMA10 (the blue line).
The AI Blowout
After a sideways move that spanned 6 months, SMCI and NVDA both broke out in early January and haven’t stopped since.
NVDA doubled, SMCI touched a 4X and the FOMO is real. No one wants to be left behind on the AI rush — and the price sets the narrative.
Yesterday’s sharp sell-off indicates to me that the move is getting tired — and going by the idea that all parabolic moves get exhausted and reverse, I am looking for some choppiness and downside from these levels. Again I am eyeing the EMA10 level of Nvidia as a level of importance.
A move below that will give me more conviction that we are going to slide down from here. The EMA10 sits at $842.90 and I wouldn’t be shocked if Nvidia even retests the $500 - $550 area… 👀
If the Semi/AI complex reverses from here, what’s going to carry the indices?
Big Tech slowing down
AAPL has been moving sideways for more than 2 years now, I explained the fundamental picture of the company here. I don’t expect big moves from AAPL going forward.
GOOGL is also lagging, with internal turmoil and a failure to catch up to the AI chatbot market. The stock is down 10% since its November 2021 peak.
Tesla seems to be facing some serious problems, existential even. The stock is down ~60% since its November 2021 peak, and the company’s CEO is keeping busy with Twitter, AI and everything else.
Purely technically on Tesla there isn’t much to say, the stock peaked in November 2021 after a parabolic move that was stopped in its tracks (that’s when Elon sold a bunch). The stock has been dominated by sharp sell-offs and sideways moves since — ok sharp rallies too.
The EV theme is losing steam and news flow isn’t conducive to bullish momentum. I wouldn’t be shocked to see this retest the $100 range.
Enough for today. When I see noteworthy moves/reversals, I will be back with another breakout.
Sincerely,
Philo 🦉