The Forex Chronicles

Archives for April 2020

Potential Bitcoin Breakout – April 2020

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Bitcoin Trading

Bitcoin has always been a popular instrument for long-term buy and hold investors because many people see the long-term value of this particular cryptocurrency, and believe that it will be trading a lot higher in the years to come.

However it has also become a very popular market for short and medium-term traders to trade because many people have found that it follows similar patterns as the more conventional trading instruments (stocks, indices, commodities, etc), and works really well with technical analysis.

So with that in mind, I want to offer my latest analysis of Bitcoin’s recent price action, and highlight why it may be set for a possible breakout in the near future.

Recent Price Action

As you can see from the price chart below, the price has been trading within a descending triangle for much of 2020.

Bitcoin Price Chart - April 2020

It reached a high of around $10,500 back in February, and posted a low of around $3900 on 13 March 2020, after losing approximately half its value in just two days of relentless selling.

Since hitting that low point, the price has been slowly trending upwards, trading just above $7000, and now seems to be somewhat stuck in a sideways trading range, undecided about which direction to take.

Possible Breakout

This indecisiveness, combined with the descending triangle pattern, suggests to me that we may be about to see a significant breakout once the price breaks decisively out of this triangle.

At the moment it is hard to see the price of Bitcoin breaking strongly upwards because if you look at a few other indicators, you can see that this upward price movement is starting to run out of momentum.

For example, there is divergence on both the MACD and MACD histogram indicators, and both are looking like they might be about to cross downwards, indicating the start of a new downward trend.

If the price were to break below the psychologically important 7000 level, and then close below the lower trendline of the descending triangle, ie below 6900, then it could easily fall back to the 6000 level in a short space of space, and possibly as low as 5000 over time if this breakout gathers momentum.

If, on the other hand, it could move as high as 8000 and break decisively upwards out of this triangle, then it wouldn’t be at all surprising to see it reach 9000 or 10,000 once again, but in this economic climate, this seems unlikely in my opinion.

Final Thoughts

It’s important to point out that these are just my own thoughts and opinions, and is not intended to be financial advice. It’s perfectly possible that there could be a false breakout and the price remains range-bound for the foreseeable future.

However it is still interesting to see how these descending triangles unwind because they will often end with a significant price move upwards or downwards, and with so much sideways price action in recent weeks, that may well happen here with Bitcoin.

You can be sure that many other traders and investors are waiting for some kind of breakout, so as is so often the case, it may become a self-fulfilling prophecy once traders jump on board and trade the resulting breakout as soon as it occurs. Stay tuned.

3000 Could Be Key Resistance Level For S&P 500

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2020 Price Action So Far

It is fair to say that 2020 has been a complete disaster for many stock market investors thanks to the global coronavirus pandemic that has effectively closed down the world’s economy.

You only have to look at the price chart of any mid-large cap stock, or any major stock market index for evidence of this.

The S&P 500 is a classic example. Even as recently as February, this index was closing in on 3400 and making new all time highs before the virus started spreading outside China.

However things really turned negative in March as the effects started to be felt in many countries all over the world, with thousands of new infections and rapidly growing death rates ultimately leading to complete lockdowns and the closure of many businesses.

Subsequently, the S&P 500 fell all the way down to around 2200 at one point, so it is quite remarkable that it has since recovered back up to the 2800 level.

Strong Resistance

At the moment, however, it is hard to see this upward price move continuing for much longer.

As I posted on my eToro feed yesterday, it is getting closer to its 200-day exponential moving average, which by itself often acts as strong resistance.

However the fact that this indicator is also very close to the 3000 level, ie a major round number, makes this even more significant because it is likely to provide even stronger resistance.

Here is the chart that I posted yesterday:

SPX500 - 15Apr

Since then, the S&P 500 has fallen from 2830 to it’s current overnight level of 2800, and all of the additional indicators are still suggesting that this market is currently in overbought territory and likely to fall, as you can see below:

SPX500 -April 16

The MACD histogram is slowly falling as the price has been rising and the stochastic indicator is still above 80, suggesting it has potentially reached a peak. The only exception is the RSI indicator because this has not yet crossed above 70, suggesting that the price could yet go slightly higher.

However this latest price chart is still pointing towards further weakness in the coming days and weeks.

The Fundamental Argument

It is all well and good looking at the price charts to make trading decisions, but it is often good to look at the fundamentals as well.

The S&P 500 has been trading on a large P/E ratio for several years now, prompting many to sell their index ETFs, VOO, SPY, etc, and wait for a reversal to buy back in cheaper.

Even though the index is well below it’s all-time high, the fact remains that it is still trading on a very high multiple. As of yesterday, iShares’ IVV was still trading on a P/E ratio of 18.75, and this doesn’t really account for the fact that the earnings part of this formula is likely to fall sharply later this year, pushing the P/E up even further.

Final Thoughts

So these are some of the reasons why I think the S&P 500 is likely to fall in the near future. There are strong arguments both fundamentally and technically why the S&P 500 could easily drop to 2500 again, and possibly even further.

When you also take into consideration the fact that we are still a long way off developing a vaccine for COVID-19, and many countries are still in lockdown, it really is hard to put forward any arguments why this index should rise much further at the present time.

eToro Trading Update – March 2020

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Worst Month So Far – Down 15.69%

First of all, I would like to apologise for not continuing to post monthly updates about my eToro progress in recent months.

As many of you will know, March has been a terrible month for stock market investors, so I thought now would be the perfect time to write a new update.

The impact of COVID-19 around the world has had a devastating impact on many countries’ economies and has decimated many people’s portfolios as a result, including highly respected fund managers such as Ray Dalio.

I have suffered as well because after the final day of trading, my account was down 15.69% in March, following on from a fall of 9.07% in February and a 2.99% fall in January.

SteadyProfits Performance Stats - March 2020

Trading Performance / Portfolio Update

Many people assume that the coronavirus is responsible for most of these losses, but in my case, the ongoing dispute between Saudi Arabia and Russia has also had a major impact because this has driven the price of oil down to just $22 in the case of WTI Crude.

Subsequently, I have seen the share price of two of my largest holdings, BP and Royal Dutch Shell, fall by as much as 50% before bouncing back to a slightly more respectable level.

Other companies in my portfolio have performed equally as badly thanks to the enforced lockdown in the UK and elsewhere.

For example, HSBC is down over 20%, Aviva is down over 30% and RBS and Barclays are both down around 34%. Even my FTSE 100 tracker is down nearly 22%.

My US stocks and ETF have performed a little better because I purchased these a little later using the proceeds from my bond ETF sales.

Visa is down around 19%, Google 11% and SPY (a popular S&P 500 tracker) around 16%.

In short, everything is down a lot but I am not currently selling anything for a loss because these are all good quality companies / ETFs that should all go back into profit over time once we start to eradicate COVID-19.

Most of them pay very generous dividends in the meantime, although I am just hearing that UK banks are all cancelling any future dividends for the remainder of 2020, which is obviously a big blow.

It should be noted that it hasn’t all been doom and gloom because as mentioned above, I sold three of my bond ETFs for decent profits last month, and I also made a profit of over 15% on a short-term trade in Barclays.

Dividends Received

eToro have recently changed the way that payments are received so that they are now in line with most other brokers. Instead of paying out dividends on the ex-dividend date, they now pay the dividends on the official payment date for each company.

As a result of this, I received dividends last month from a few companies that went ex-dividend in February, including Visa, ISF, BP and Royal Dutch Shell, so this provided a decent income to mitigate some of the heavy losses.

This month there are more dividends due to be paid out from SPY, but the anticipated dividends from Barclays and HSBC have now been cancelled.

Copiers

At the start of the year I had as many as 8 copiers copying my trades at one point, but with the global stock market collapse, I now only have 3 copiers, which is perfectly understandable.

I am invested for the long-term with short-term trades boosting profits in the meantime and am fully prepared to ride out any storms, but everyone has their reasons to stop copying someone.

Risk Score

As a result of some wild fluctuations in the value of my portfolio, my risk score has gone up from 4 to 6, which is obviously not ideal. Hopefully this will fall once the markets settle down a little bit and stop moving several percentage points in one day. If not, I may have to trim some of my larger holdings.

Final Thoughts

Overall, I am not too unhappy with the overall loss of 15.69% in March, as crazy as that may sound. I was actually down a lot more at one point when the FTSE and S&P 500 were down significantly more than they are today.

The key thing you have to do during a crisis is to avoid panic selling. As long as you are invested in good quality stocks and ETFs, you should be OK in the long run, however long that may take, and I believe I have a good mixture of both.

So for now I am just continuing to bank any dividends and waiting for this coronavirus nightmare to be over. Stay inside, stay healthy and keep buying at low prices is my philosophy for the immediate future.

Follow Me on eToro

If you would like to follow my journey on eToro, simply open an eToro account and search for SteadyProfits to view my live trading results and to see my latest trades.

Past performance is not an indication of future results. This content is for information and educational purposes only and should not be considered investment or portfolio management advice. 81% of retail investors accounts lose money when trading CFDs with this provider.