Welcome to the free version of the Art of the Bubble!
1.2 Labs offers this Art of the Bubble bulletin for educational purposes. Our paid plans make use of the same base algorithm that our crypto hedge fund, 1.2 Capital Management, does.
We have two primary data offerings for stocks: (1) a risk parity “Bubble Portfolio” and (2) a “Leveraged Index Portfolio”. They are pictured below relative to their benchmark: the QQQ, which is an ETF of the Nasdaq100. (Data updated Quarterly)
Hello Bubble Riders!
I’m interrupting my planned cycle of Airdrop Farming lessons to discuss an algorithmic signal that identified the exact bottom for Bitcoin. It’s all part of our upgrading of DIY subscribers to Alpha Riders (same $15 / month).
In the video below, which gives you a taste of our new Alpha Lessons, I explain this contrarian signal.
How much is finding the exact bottom worth to you? In that 5 minute vidoe, I’m confident that you’ll learn something new.
The indicator in that video nailed the exact bottom of the Bitcoin market decline. It also identified 3 other excellent points of entry. Assuming that you bought in at equal increments with this indicator you’d get this as a return:
- May 12, 2023 - $28,709
- June 16 - 19, 2023 - $19,903 (roughly)
- November 9, 2023 - $15,782
Weighted Average Entry: $21,465
Current Price: $30,092
Current Gain: 40.2%
Bitcoin, by contrast, is still down more than 50% from its all-time high and started 2022 at $46,209. That means that BTC is still down 34.9% from that period.
Running this strategy over that time frame thus delivered 75.1% alpha. That’s outperformance over Bitcoin. And I just gave it away to you for free.
But wait, there’s more!
The indicator also suggests that we’re done with declines. Yes, the mid-cap and small-cap market has been pummeled since BTC hit its bottom, but smaller coins have always lagged a BTC rebound.
Given the infrequency of the signal, one might expect at least a few more positive months of returns before anything bad happens–which is consistent with the growing consensus among economists that a recession, if there is going to be one, will transpire in 2024 or 2025.
And these points make the Alpha Rider info that much more relevant. I'll give you some of that for free right now.
On Discord, we’ve been dropping items like the following on almost a daily basis for Friend.Tech.
What do you do with this info?
- Check for recent activity on Twitter (X).
- Check for recent activity on Friend.Tech (search without the @ on Friend.Tech).
- If they have recent activity on both, then the key is likely to make money if Friend.Tech activity picks up again. So, you have a nice possible buy candidate.
We’re developing these “alpha drops” into a more thorough and separate weekly Airdrop Report in preparation of the bull run that we think still won’t be obvious until 2024, but which has most likely just started.
To summarize, we’re changing the DIY-er subscription to the Alpha Rider subscription to help you enter the bull market in a more prepared way. We think that we're at the beginning of that right now.
I didn’t explain in this newsletter what the Alpha lesson consists in because it’s much better to watch it in video format.
In 5 minutes you’ll learn about one of the most powerful historical contrarian signals out there (click here). I hope you also get some use out of the Friend.Tech alpha.
Happy Trading!
-Sebastian Purcell, PhD
The Macro Situation
rising yields (noun):
- that which lifts all boats;
- economically, when stocks are overvalued, that which sinks all boats.
― New Entry in the Updated Devil’s Dictionary
There were a lot of factors pushing against the markets and investor confidence this past week. In addition to uncertainty arising from the Israel-Hamas war, China announced that it reduced its treasury by a whopping $21B, much of which included selling US stocks and bonds. There’s also the thorn in the side of the Fed – i.e. the labor market. It remains strong, with jobless claims dropping to a 9-month low (198,000 last week).
While last week’s macroeconomic scenario featured US Treasury yields dropping by 8 basis points in the face of risk aversion (i.e. more buying of bonds), this week sees a different twist unfold. Moving liquidity from assets to more stable bonds isn’t sticking.
Why?
At least four factors:
- the combination of quick sell-offs (e.g. China per above),
- rapidly rising yields due to the sell-offs,
- hawkish Fed comments on Thursday, and
- the fear of an overly rosy picture of the stock market being propped up by tech companies.
Together, they potentially spell a volatile bond market and further pressure on borrowing costs.
The 10-year Treasury yield neared a record 5%, closing at 4.909% for the week!
The winners?
Despite the confirmation that the Fed is determined to raise rates more if necessary, gold (1991.50) has surged as the stocks and bonds markets step onto shaky ground..
Crude Oil (89.02) dipped after breaking $90 per barrel on Thursday. It will continue to benefit from the geopolitical fallout in the Middle East.
If liquidity can be freed up and a soft or hard recession looks more likely, then bonds may benefit.
- Todd Mei, PhD and Sebastian Purcell, PhD
AI Sentiment Report
The following sentiment scores use ChatGPT as part of the AI tech stack to track sectors as leading indicators. (Lesson 4 of The Art of The Bubble covers the selection of lead indicators for bubble trades). The scores are most indicative for the next day of trading (a Monday), but they appear to set the general tone for the next week.
The methodology employed is based on this peer reviewed academic article, which produced 550%+ results in back tests over a 2 year time frame. We consider 4 and 5 scores to be positive, but please bear in mind that the AI model is still in its validation phase.
-The Research Team:
Dom Viera, Samantha Russell, Nicole Zinuhova, Aiza Malik
Happy Trading!!
Think About Premium
Our premium plans make use of the same base algorithm that our hedge fund, 1.2 Capital Management does, but modified in timeframe so you don’t have to stare at your screen all day.
We have two primary data offerings in cryptocurrencies: (1) AOTB Dynamic and (2) the Crypto Maxi. Here are our returns with comparisons to others (data from Messari.io).
This newsletter is provided for educational and entertainment purposes only and should not be relied upon for business, investment, taxation, or legal advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by 1.2 Capital Management. (An offering to invest in a 1.2 Capital Management fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation--all of which should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by 1.2 Capital Management, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
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