Enjoy the current rallies, but don’t get carried away

Having discussed the potential for some markets to strengthen in recent reports, they fact they happened is hardly a surprise. Equity traders need an end year rally to boost their bonuses, and institutions that invested in BTC early last year are striving to push it back above where they bought.

Call me cynical if you wish, but when these rallies are driven by reports that major global IT corporations adding billions to their bottom lines, and we hear the media over stating the genius of “Zuckerbuck”, and these reports take precedence over geopolitical conflicts, public debt, or diminishing savings, I can’t help but question the perspectives of many media talking heads.

Even if I didn’t gain financially from these rallies, I take pleasure in observing the markets align with my recent expectations. We will never capitalize on every move in every product, but avoiding being on the wrong side of these movements is equally satisfying. It instills a certain level of confidence in my beliefs regarding the future direction of the markets.

Between now and the end of the year, there will be numerous short-term opportunities in our markets, particularly for traders who base their decisions on chart patterns and technical indicators. For those who rely more on fundamentals and make trading decisions based on questionable news stories and unreliable data, the job will be a little more difficult.

From a technical perspective, I would suggest that there is more upside potential for BTC over the next month or so. A move to 42,000 is a distinct possibility, and there may be more room for growth. However, as we approach the levels at which major institutions entered the market, I anticipate some of them will choose to reduce their risk exposure, which could limit the chance of revisiting the values we saw two years ago.

Two years ago, the cryptocurrency landscape was akin to the wild west, with many enthusiasts excited about owning a product operating beyond government and central bank control. It was an attractive game, and eager young investors were willing to invest their savings in it.

I appreciate the concept of BTC and the freedom it once symbolized. However, we now have increased institutional involvement and SEC recognition, which for me means there is more regulatory risk associated with holding BTC, which has diminished its appeal.

This week, I’ve come across opinions suggesting a drop to 12,000 as well as reports forecasting a rise to 120,000 next year. It all depends on who you listen to. What is certain is that as regulation of crypto intensifies and the introduction of unwanted central bank digital currencies (CBDCs) become a reality, the future of this particular “digital commodity” is uncertain.

We have also witnessed some notable strength in the equity market, which is unsurprising given the time of year. However, the issue with this rally, which might continue for a few more months, is that it is primarily led by a handful of global corporations (and sadly, the military-industrial complex. Unfortunately, companies like BAE Systems could thrive in the coming months).

Typically, an increase in equities would be seen as positive for the economy, with many companies raising capital and expanding, indicating growth. Yet, instances of such expansion seem to be few and far between.

While there are encouraging stories such as increased consumer spending, improved figures from China, slowing inflation, and corrections in 10-year bonds, we do tend to hear positive stories during market rallies and negative ones when values decline. That’s just the nature of the market.

If we are to witness sustainable growth in the Western world, it’s unlikely to materialize until after Joe Biden leaves the White House. Europe’s financial woes don’t inspire much confidence, and as a biased Brit, I have to admit I have reservations about the housing market’s impact on the strength of the pound. Indeed, even though I lean to the conservatives, Rishi Sunak and his Chancellor are proving to be a real disappointment.

For these reasons, I’m considering putting most cryptocurrencies and equities in a box with my Christmas decorations. They may stay up for a month or so, but after Christmas, it will be time for them to come down.

In truth, I don’t anticipate the markets will unfold exactly as I’ve described, but while I’m enjoying this rally and looking forward to further increases, particularly in the commodity sector, I’ll be watching for a time when certain markets have gone so high, that they are about to collapse due to a lack of oxygen.

Until then, buying on dips seems to be the short-term strategy of choice.