DCU - Are We in a Correction? (10th Sep '17)

Market Performance (Global Market Cap):

  • 24-hour gains: -13.6%
  • September gains: -18.2%
  • Year to date gains: +701.1%

Portfolio Performance:

  • 24-hour gains: -10.4%
  • September gains: -14.3%
  • Year to date gains: +1,302.1%

Apologies for the lack of updates over the last couple of days, I have been traveling back from The States and settling back home. Also, the volume of content I have been producing is not sustainable, so I am looking at changing things a little.

September continues to be a red month with the market dipping again over the last few days. I am though comfortable that my portfolio is in good shape compared to how it has performed against the market. What I am trying to figure out is, are we in a dip, a correction or are we at the start of a bear market? 

So we are not in a dip, a dip is a temporary drop in either the market or a coin which usually recovers quickly. A correction is where the market or a coin has moved in one direction too quickly, and the market reacts to settle back to a more comfortable price range. A bear market is where market sentiment is pessimistic and driving widespread selling over a lengthy period.

Within the stock market, a drop of around 20% over two months is considered bear market territory, but Crypto isn't traditional. We are +21% down from the height of September 1st where the GMC was at $179bn; if this were the stock market this would likely cause a panic across global markets, and a possible global recession.

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The way in which the Crypto market can tolerate huge % drops reflects the unique nature of the market but also its infancy. The speed at which prices can change highlights how volatile such a speculative market can be and why it is so hard to predict what will happen next.

My gut feeling is we have a nervous market, while investors have enjoyed spectacular gains this year, they are also nervous that any significant drop can hit their portfolios quite hard. This is compounded by the fact that the market is littered with whales and amateur investors:

  • Whales can react to market conditions with huge sells which move market prices significantly
  • Amateur investors panic and sell when the market moves against them

The $5k Bitcoin triggered the first selloff, but like any price target which triggers profit taking it should have recovered pretty quickly. The banning of ICOs by China triggered the second selloff and just as the market looked to recover, the confusing news about whether China is banning the trade in Crypto triggered another selloff.

It now remains to be seen where the market will go. The GMC appears to be defending the $140bn marker quite well, twice rebounding off $137bn. Where an individual coin finds support and resistance at certain price levels, it may appear wrong to talk about a market defending global positions, and I am not aware that there are investors who watch this and price their buying and selling against it. My feeling is that when the market is booming or crashing the whole market tends to operate in a particular and predictable pattern and as such, there tends to be an unintentional aggregate support.

The correction of June/July saw the market drop by +47%, and we could see the same now, or even worse if we enter bear market territory. This said I don't feel we have any reason for this to be more than a correction. 

I was better prepared this time than June/July as I had more money off the table, though it should have been higher, another lesson for the future. My play now is to watch the market this next week and see what happens, if we can survive the week without any negative market news and the prices do not recover then we are definitely in correction territory. I won't be doing any selling though; I don't ever like to sell in a correction because it is always hard to predict when a correction ends. I would much rather be selling when the market is going up, like my sale of Dash, Komodo, and Syscoin last week, which all looked like good decisions.

If the market does start to move up again then there are some good buying opportunities out there, specifically I am looking at the following:

  • NEO: down 58% from its high of $51. I can't see this dropping much further; it seems to have good support at $20.
  • Komodo: down 41% from its high from the anticipation of their announcement. White the presentation was terrible, I thought the announcement was good news and was surprised the price tanked so hard. A decentralised ICO platform is a cool thing, even if so many ICOs are garbage.
  • Blocknet: down 47% from its high of $35.42, the price is still in range and when the market recovers this could prove a good buy.
  • Litecoin: down 31.6% from its high of just over $90. This is an about turn for me here, the more I use Litecoin, the more I like it and the more it highlights what better shape it is in as a usable currency than Bitcoin.

Timing my investment in these is tricky because if the market drops further these could be expensive buys but if the market recovers then these could be some great investments.

We will just need to see how the market reacts next week.

Any questions, then please do give me a shout.