Currently, $SPY is working within a solid range, but it looks like $385 might be the bottom. If it breaks $385 we will move down to $330 but I doubt it breaks. I think is not the beginning of the end but the start of a new trading pattern. Chop possibly for the rest of the year, up and down movement working within the range of $450-$410. Caveat: The market can do whatever it wants but my guess is we do not see $500 for another 2-3 years, we got some consolidating to do before we get that type of movement, the last two years are bad examples of the market volatility and movement. The market relied heavily on tech stocks to bolsters itself through the pandemic, with strong earning reports quarter after quarter from the FAANGs (largely tech companies), the "market" was able to rally. The "rally" was more so bullish sentiment built on a façade, it was like looking at a mirage of water in a desert, it looks great but when you finally get there, there is no water. That is how our market acted, we finally got to the "top;" out of the pandemic and there was no water. The market was overbought, there is a myriad of reasons why: stimulus checks, retail trading increasing, people staying at home, transportation cost reduction, you name it. Yet no one factored any of these into their estimations, like how could you not factor in the price of gas in a company like Amazon, gas costs went down, product costs remained the same, their margins increase. But let's say you did see that and factored it in, you also missed the fact that over millions Americans continued to eat, while the workers that produced the majority of our food decreased, leading to a decrease in reserve supplies to produce food. Leading to global shortages that we will be facing in the next couple of months. By the time most people realized this, it was too late. But none of the matters because now people overreacting, they are selling everything and that's where you the smart savvy investor come in.
Snapchat is down 40% today (5/24), oversold, when people are bearish bad news becomes the worst news in history, and this plays into my theory. That the reason the market is tanking is not due to some economic collapse, the stock market doesn't work in tandem with the economy anymore, not since 2008. If it did, 2020 and 2021 would have been much worse. No the stock market operates on it's own and is controlled by major capital. Tech stocks need to rebalance, they were overbought, this should not be a shock to anyone. In order to achieve an equilibrium in the stock market we most lower the prices of the FAANGs + MTBV*, this will allow the market to find a balance to build up from. The issue with selling the FAANGs + MTBV* is that it drags down the entire market, which if you remove the tech sector has been down for the last couple of months, so mid-caps and small-caps have been hammered by this downward movement. Snapchat being down 40% is a buy opportunity, Pinterest losing 23% off Snapchat bearish sentiment is a buy opportunity, Trade Desk hitting almost a 2 year low, buy opportunity. Even if I am wrong, and the market turns down for the next 1.5 years, in 3 years you will have made a profit. That is the wonderful part of the stock market, in a 20 year time span you are less than 0.01% to lose money. But if I am correct and the market jumps from here you just missed your best buy opportunity in the last two years.
How does this affect alternative assets like cryptocurrencies?
Well for starters, we need to treat Bitcoin like a large cap tech stock, the proxy I like to use is a company like Shopify. Outside of Bitcoin with the exception of Ethereum, all other crypto currencies need to be evaluated like small cap stocks. I also understand they many tokens are used as transactional currencies which effects price fluctuation and volatility. However, if we analyze them like a small cap stock it is easier to understand their price movement and simplifies charting patterns which can be tricky when dealing with alternative assets. Another issue when working with cryptocurrencies is their relative liquidity factor. On average most crypto currencies can be converted into local currencies relatively easy with little to no cost and with minimal time constraints. This leads to further devaluation of these alternative assets. Yet with all of these constraints on crypto currencies most have managed to remain "normal" in this bear market. What I mean by normal is they are not dropping more than a small cap would in the stock market. For example, Farfetch, a small cap stock listed on the Nasdaq was down 10.5% today (5/24), compared that to a cryptocurrencies such as Cardano which is only down 2.64% on the day.
If I adjusted the 24 hour to 6:30 time difference plus or minus the weekend and overlay these two charts again [Farfetch in Green/Red, and Cardano ($ADA) in Orange] then you would be able to see that the patterns are almost exactly the same. For our purposes I didn't adjust the time so there is a true visual representation of the two assets. Getting back to my original point you can clearly see that cryptocurrencies follow small cap stock patterns, almost exactly, day-to-day price movement will vary but overall month-to-month and even in some cases week-to-week patterns are almost exactly the same. So what does this mean? If cryptocurrencies work like small cap stocks then what does this mean for the future of cryptocurrencies? Well, that is a hard question to answer. How decide when to invest has become heavily reliant on overall stock market performance, I use the S&P 500 as my medium to understanding the market. The S&P 500, like I have mentioned in my pervious articles is not perfect by any means, it is cap weighted index that leans heavily into tech stocks but for the last couple of years tech stocks have remained as the most dominate force in the stock market, hence why I think the S&P 500 is a good proxy/medium. 
If my theory is correct that the market's downward movement is only a price correction and not leading into something further than for the next couple of months we will be in a choppy market, my guess between $400-$450 in $SPY. Now for alternative assets and for small-caps we can see a huge rebound over the next couple of months if we break out of this bearish cycle and lean into a more neutral pattern. This would help rebalance the market lowering the price of the overbought tech sector whilst allowing the mid caps and small caps to make up some of their losses over the last couple of months. My best advice as always is due to your due diligence and trust your gut.
I will leave you with two Warren Buffett quotes:
“Don’t pass up something that’s attractive today because you think you will find something better tomorrow.”
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
Happy trading
- @Hypothetical
- Chase
Stars (*)
FAANGs + MTBV:
Facebook (Meta)
Apple
Amazon
Netflix
Google (Alphabet)
Microsoft
Tesla
Berkshire Hathaway
Visa
