3-Min. Weekly Market Sentiment Wrap-Up — May 14th

In the past six-seven weeks, I’ve communicated my bearish view and the opportunity it eventually represents for long-term investors. As markets have continued lower, I will reiterate that view once more.

One doesn’t often feel, hear, read as much bearishness as one does these days. I’m not saying it’s a once in a lifetime thing, we’ve been through a more sudden version in March 2020, in shallower ways in 2018 and 2015, and definitely during 2008–2009.

But this is kind of my point: Those times were for some (and could’ve been for you) the best of times. For any investor with capital on the sideline, that gut-wrenching feeling that everything is crashing and that a portfolio, while still maybe profitable, has dropped by a quarter, or that x-amount of time were “all for nothing” … that feeling might be the time to countertrade one’s emotions, and buy.

Everybody wants to buy when things go well. Nobody wants to buy when things are going terribly. But we intuitively understand that the opposite is precisely the way to allocate capital efficiently.

I’m still convinced that macro markets are leading whatever move we’re seeing, but, let’s look at crypto first, this time, as an indicator of investor sentiment and the potential finding of a bottom.

For anybody doubting whether we’re in a bear market, the above should shows that we are. Regardless of how you define it anyway, BTC prices have gone from 68K to now 28K. Your 1,000,000 is now 430,000. If you’re holding a diversified portfolio with altcoins, it’s most probably 250,000.

People who have liquidity and don’t buy now are essentially saying: I’m making a prediction, I’m timing the market, I think it will go a tad -or a lot- lower, and I want to catch that absolute bottom. I’ll buy when BTC falls below 25K, or below 20K, or below 15K.

They might end up being right. Who knows. But I hate those binary strategies. History shows that humans and definitely retail investors are awful at making those types of guesses.

So, instead, one should look for discounted price and start to gradually allocate chunks of capital. If we are headed higher, you’ll have some capital allocate already; if we’re indeed headed lower or will retest the recent lows, you’ll get to allocate some more and optimise the break-even price of your position. Averaging in and out ensures that you never get the absolute best price but it ensures that you always get a decent price. On the long-run and as a believer in risk assets (growth stocks, real estate, gold, crypto) I think this is a fair trade.

Let’s look at some colourful charts 🤓

Realized price, representing the aggregated cost basis of investors. (taken from Will Clemente’s twitter)

The reserve risk which is an indicator combining the ‘hodl bank’ indicator and price to relate whether long-term holders of BTC are drawn by high prices to sell or if they think prices are low and won’t budge.

And the 200-week moving average, currently sitting at $22,000.

Are we done retracing? Probably not. Will we touch the above moving average, for example? Probably. Could we overshoot? Definitely.

But we also might not.

In the absence of certainty, the average of the two binary outcome might be best.

Back to macro markets. I feel very much the same way. I’m in chats with people who were hyper bullish six, five or three months ago that now have turned ultra bearish and don’t see the way out. I don’t either, I don’t know when it’ll come and in what form. But by the time it comes, you, I, we’ll be too late to take advantage of it. We must be willing to fumble -for a bit- in the cold and in the dark, to be ahead when the light comes. When the sun is shining, you’ll be heading into sunset already. Those cycles need to go against how markets feel.

Right now, the fundamentals leading price action haven’t change: inflation is high and isn’t abating just yet, Russia-Ukraine is that undecided mess that we hear about (but less, as readers fatigue and move onto the next thing), supply chain routes are irremediably messed up for this year, food shortages are coming in one way or another, rate hikes and quantitative tightening are changing the monetary environment we’ve been used to and therefore valuations…

Yet, the feeling I get is that with everyone finally turning bearish, we might get a black-swan event to the upside, an unexpected bullish reversal. We’ve seen a bounce during Friday’s session but this is much too early to tell how it’ll play out.

Either way, time to start averaging in, in everything.