Sentiment - Long term vs short term
While the CNN fear and greed index can be a good indicator of short-term tops and bottoms, there is something more sinister at play here. Whenever the CNN fear and greed index goes to the extremes, a reflex bounce occurs to reset the sentiment. But that may not create the necessary conditions for a sustainable intermediate-term bottom.
Here's why. The investors intelligence survey recorded some extremes in spreads between the bears and bulls. The spread even exceeded the 1987 top. I posted this many times on traders-talk.com. But this was largely ignored by amateurs and professionals alike, as the parabolic move gave a false sense of security that nothing could go wrong. The amount of froth and participation required to create a parabolic advance, in itself is a huge measure of sentiment. You don't need any sentiment surveys. Just one look at Dec 2017 to Feb 2018 charts of Bitcoin, ICOs and the S&P/DOW/Nasdaq should sum it all up.
What differentiates a minor top from a major top is the quality of sentiment measured. Professional herding happens at major tops. Yes, the pros are humans too and they get caught up in the hysteria. Investors Intelligence is a measure of the professional sentiment. The professional advisors are caught on the wrong side of the market now. A simple bottom and quick move to new recovery highs will vindicate them easily, which is why we are not seeing a sustainable bottom yet. We need to see them throw in the towel before we see a major bottom.
Now coming back to the crypto world, this is some insanity that i have never witnessed in my 20 years of trading and my reading of 200 years of financial history. Bitcoin lost almost 60% in the correction from the top. The ICOs and other alt coins lost anywhere between 70 to 90% and yet the crowd keeps screaming HODL and ignore the FUD. When Nasdaq lost close to 90% in the fall of 2002 and early 2003, i remember the sentiment. People had got disgusted with tech and virtually everybody had thrown in the towel. Now could you imagine a new IPO offering in the fall of 2002 ? That is the exact equivalent of what we are seeing now in the ICO space. New ICOs are getting subscribed to, even after a 90% rout in the ICO space !. Now this is reflective of some rare financial excess that mankind has ever seen. There's so much money floating around the world, which is seeking yield, that nobody gives a damn about where they are investing !. Either that or we are witness to investing by some of the moronic folks that the world has ever seen, who know zilch about investing and trading.
The Investors Intelligence and the Crypto sentiment will take a while to reset. The crypto folks are not shaken even a bit. The Investors Intelligence folks will need a deeper drop to capitulate. The pros are putting up a brave face, praying that the 200 MA holds on the S&P. If we pierce thru the 200 MA and/or get a golden cross (50/200 cross), the pros will throw in the towel. The crypto folks will not capitulate until many of the ICOs go to zero and bitcoin plunges below the 2k level.
Again this is not a bull market, bear market debate. This is still a bull market until the quarterly trend which has been driving this bull since 2009 is intact. More on that in a separate post. This is about an intermediate term correction which is going to be complex and will take a lot of time before it concludes.
Here's why. The investors intelligence survey recorded some extremes in spreads between the bears and bulls. The spread even exceeded the 1987 top. I posted this many times on traders-talk.com. But this was largely ignored by amateurs and professionals alike, as the parabolic move gave a false sense of security that nothing could go wrong. The amount of froth and participation required to create a parabolic advance, in itself is a huge measure of sentiment. You don't need any sentiment surveys. Just one look at Dec 2017 to Feb 2018 charts of Bitcoin, ICOs and the S&P/DOW/Nasdaq should sum it all up.
What differentiates a minor top from a major top is the quality of sentiment measured. Professional herding happens at major tops. Yes, the pros are humans too and they get caught up in the hysteria. Investors Intelligence is a measure of the professional sentiment. The professional advisors are caught on the wrong side of the market now. A simple bottom and quick move to new recovery highs will vindicate them easily, which is why we are not seeing a sustainable bottom yet. We need to see them throw in the towel before we see a major bottom.
Now coming back to the crypto world, this is some insanity that i have never witnessed in my 20 years of trading and my reading of 200 years of financial history. Bitcoin lost almost 60% in the correction from the top. The ICOs and other alt coins lost anywhere between 70 to 90% and yet the crowd keeps screaming HODL and ignore the FUD. When Nasdaq lost close to 90% in the fall of 2002 and early 2003, i remember the sentiment. People had got disgusted with tech and virtually everybody had thrown in the towel. Now could you imagine a new IPO offering in the fall of 2002 ? That is the exact equivalent of what we are seeing now in the ICO space. New ICOs are getting subscribed to, even after a 90% rout in the ICO space !. Now this is reflective of some rare financial excess that mankind has ever seen. There's so much money floating around the world, which is seeking yield, that nobody gives a damn about where they are investing !. Either that or we are witness to investing by some of the moronic folks that the world has ever seen, who know zilch about investing and trading.
The Investors Intelligence and the Crypto sentiment will take a while to reset. The crypto folks are not shaken even a bit. The Investors Intelligence folks will need a deeper drop to capitulate. The pros are putting up a brave face, praying that the 200 MA holds on the S&P. If we pierce thru the 200 MA and/or get a golden cross (50/200 cross), the pros will throw in the towel. The crypto folks will not capitulate until many of the ICOs go to zero and bitcoin plunges below the 2k level.
Again this is not a bull market, bear market debate. This is still a bull market until the quarterly trend which has been driving this bull since 2009 is intact. More on that in a separate post. This is about an intermediate term correction which is going to be complex and will take a lot of time before it concludes.
Your comments are helpful, Nav.
ReplyDelete