The Carnival is over

Knowledge is the power that interlinks the markets

All the facts are there but can you see them ?

By Richard Matthews February 4th 2018

I like to read, actually I like to read a lot and I am not too fussy what I read. Newspapers, Social media, information leaflets; you name it I will pretty much read it all. Well of course everything apart from an instruction manual as, of course I know best how to do everything. Which I will prove later on today when I construct an ambitious Lego toy with my grandson Joel. Not only will he end up with an incredible new toy but he will have learnt a new acronym RTFI. He won’t have learnt what it stands for as he is, as of today, too young . For those of you that don’t know what it stands for a polite version is Read The Friggin Instructions. Signs, hints, runes or tea leaves call them whatever you like are the instructions that we all read and interpret differently for trading signals.

If you read and take any serious notice of social media apart, from the jokes, I would have genuinely questioned your intelligence till recently but having seen clear trading signals in the last week in some of the more outrageous claims on Cryptos I wonder if the Twittersphere, or whatever you wish to call it, should at least be taken a bit more seriously as a contrary indicator? Increasingly there have been the “now is the best time ever to buy” Bitcoin articles. Hmmm….Long and wrong comes to mind and as time progresses ever more desperate claims have been appearing. I blow hot and cold on Cryptos , I will call them currencies when I can buy a Mars Bar with them , but I have said several times that most Cryptos are without doubt a bubble that will fade before revealing its fortune. Bitcoin has gone pop and it now has entered territory which will really test it. An old friend wrote recently that you never forget your first fast market, which is true but your first fast bear market? Now that is memory making.

I love the smell of fear in the morning

It is widely assumed in the mainstream press that brokers and traders make no money from bear markets. This may be because the classic “ head in hands “ broker snapshot is so emotive but the facts are that to most of us it doesn’t matter whether the market goes up or down any direction is better than sideways. I loved a bear market as the fear of losing is somehow stronger than the fear of not gaining and having started out and grown up in the great bear markets it was those that I learnt to trade. Which one of us can remember filling buy orders and their associated stops at the same time? Horrific conversations at the time but non the less memory making. Of course markets are easy when they just go up – we can all buy things but in every walk of life the real art is selling as the crypto kids are finding out. And when you are long and wrong the inexperienced investor panics. And last week I saw panic in the Bitcoin market and possibly the start of an old fashioned shake out in equities and Bonds.

Some will say that here may well be some rebalancing of “ portfolios “ from Bitcoin to Etherum and  to Ripple ad infinitum but that does not explain the steepness of the falls and as always is it the chicken or the egg coming first . There have been several articles written by much more astute observers than I about the inverse correlation relationship between the Vix ( the fear index) and Bitcoin which briefly shows that as the Vix rises the value of cryptos fall and indeed there does seem to be some truth in this as there is a relationship between all markets . Last Friday evening the Vix closed at 17.31 as the Dow lost 665 points whilst the 10year Treasury yield hit a three year high of 2.8%. Fridays are difficult days as you will often see small reversals of the week’s trend but it did appear that we were seeing little more than profit taking and with some reports suggesting up to $300Bln has been lost in Cryptos we may be in for a real shake out in all markets, which rising Bond yields will only hasten.

A wobbly week in all markets and it will be interesting to see whether Mark Carney is a little more reticent than perhaps he was thinking of being on super Thursday when he announces the latest monetary policy settings  and quarterly inflation report (QIR).There was a thought that a more hawkish stance may be a taken as inflation appears to be stubbornly high  and with the Fed looking likely to raise rates sooner rather than later. Now that would make sense if the Bank doesn’t want to import inflation from abroad but with the economy still not entirely out of the woods in the UK he may just hold fire for the time being but it does appear that we are getting closer to the UK’s next hike which is reflected somewhat in the strength of Sterling . In short Carney will live up to the spirit of the Carnival season  – and we may all eat and drink for a little longer whilst being mindful that lent is coming. (Ouch. I couldn’t resist trying to put that pun in and for those whose Latin is even more basic than mine Carnival is a bastardisation of Carne (meat ) Vale ( OK ) reflecting that we can all eat meat a little longer before fasting.)

It looks like that the real trading for the year is starting to take place after the jousting of the early January weeks and if the carnage , and believe me there is some carnage , from the Bitcoin debacle spills over into the Stock Markets and vice versa there will be blood on the streets. I often hark back to my early broking days and try to remember the sound advice (as well as the not so sound advice) that was given to me. Keep your mouth shut and your ears open is perhaps the best advice that I heard but now I would add keep your eyes open .Reading social media, constructing Lego models or studying charts all have the root in the same desire of knowledge and boy are we bombarded with constant information and staccato signals. The pieces are all there you just need to RTFI, oh and have a little luck.

Richard Matthews, who began his career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5

This column is the opinion of the author and does not necessarily reflect the opinion of LiveSquawk.

Leave a Reply

Your email address will not be published. Required fields are marked *