Market Update: 11 Aug 2020
No change in our game plan from last week — we maintain our core short end-Aug 12k Calls for 96% annualized implied yield currently, and 14k end-Dec Calls for 33% annualized implied yield. On the Put side, we are keeping it tight and short-dated, rolling bi-weekly short 10k strikes for roughly 20–25% annualized yields, and making use of the price dips to add to this position.
These dips have been progressively more pronounced and violent — 15% in 30mins last Sunday could have been blamed on weekend liquidity; but yesterday’s 4.5% in 15mins in the middle of the EU and early US session, when CME trading was well underway, speaks of weakening bids on the downside, as more sit out awaiting a firm break of the 12k level.
Our preference for charting BTC in Market Cap terms (Chart 1), has the ~12k price level correspond with the $220bn-230bn implied market cap level, a firm resistance from the 2019 top, and 61.8% retracement from the all-time high to subsequent low.
The 50% retracement level of $190bn-200bn (~10.5k price level) had previously held for one year since September 2019, and Sunday’s liquidation sell-off stopped right there as well. Nonetheless despite these volatile selloffs, the subsequent bounce-backs are still consistent with the strong uptrend, and we are comfortable with our position — looking at the same 2nd Aug Sunday range level of 10.5k & 12.2k to reassess.
On the cross-asset macro front (Chart 2), the most interesting thing to note is that US Treasury yields (purple line — inverted), the first asset to lead this move higher in late-June/early-July, have begun displaying the first persistent sell-off (yield higher) since that move. This has capped the Gold (green line), Silver (red line) and USD Index (yellow line — inverted) price the past week, although it hasn’t yet led to any sharp selloff there as yet.
We will be monitoring this more closely this week as it has large bearings on the BTC (purple line) and ETH (lime green line) price (left scale). With Trump using an unprecedented executive order to break the stimulus negotiation deadlock in congress, the market is so far reacting to it with mild negativity, believing that it will hinder any future negotiations and hopes for the massive blowout stimulus needed for the next leg up in asset price.
Finally coming back to BTC, we see some similarities in this move with 2019 on the technical analog front (Chart 3 — grey circles). Both printed a a 2-day TD 13 sell (red arrow), a trendstall (yellow arrow), as well as a Non-Perfected (without the P) TD 9 — all 3 of which led to a consolidation of ~3 weeks back then (15 May — 12 Jun 19) before embarking on the last leg higher.
This TD 9 (without the P) was the first one since then, with prior tops and bottoms having all been Perfected. With a similar such consolidation taking us to end-Aug, we like our current portfolio positioning that reflects that. A 10.5k break followed by an 11k close to the downside however is our invalidation level for this, and we will re-position our book allowing price to head lower should that happen.
