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Sunday, March 19, 2017

Bitcoin Analysis and Future Roadmap


Image result for BitcoinBitcoin is a digital currency - one of many. However, it is the first digital currency of its kind with a market cap of ~$18 B, with a finite supply. This means that there will be a time when no new bitcoins will be created, which is very important for any thing of value. Bitcoin does not have any central bank or country controlling it. Hence, it is the true currency for a society without borders. Bitcoin price has sky rocketed since its launch in 2009. For details on Bitcoin basics, please go here

Bitcoin today serves multitude of functions ranging from a store of value to medium of purchasing goods. Its underlying technology, known as "Blockchain," has found many uses other than pure currency usage. In fact, many financial and other institutions are exploring the use of Blockchain in their industries. This technology promises instantaneous registration of financial transactions e.g. purchases or trade settlements. Some of the prominent Bitcoin accepting merchants include:


Recent Developments

Recently, Bitcoin has come under significant selling pressure - declining from ~1300 to ~950 in few days. This selling is coming primarily from speculators who bought the currency in the hopes of SEC approval of a Bitcoin ETF (link), which did not happen, and discussion of a new parallel currency - Bitcoin Unlimited. We have seen similar periods of Bitcoin despair in the past, especially towards at the beginning of 2016 when many Bitcoin enthusiasts proclaimed that the currency is dead and was a good experiment (link). At that time, Bitcoin price was $400 and today it is $1000.

Another apprehension is slower processing of Bitcoin transactions. However, its something that can be resolved and should be resolved. Now the interesting thing from this recent Bitcoin pessimism is that this might be setting-up a great buying opportunity for long-term investors, who want to diversify their portfolio.

Future projections

Bitcoin trend remains up. We started buying Bitcoin after our proprietary Market Classification Model (link) showed a trend change in late 2015. The trend remains up and recent surge in pessimism along with decline in Bitcoin price could provide the fuel needed to start the next rally phase.

From an Elliott Wave perspective, Bitcoin potentially completed a longer-term 1st and 2nd waves in 2015. Since then it went up in a minor degree first wave. Either recent decline is 2nd wave of minor degree or we are experiencing a sequence of 1s and 2s. In either case, once recent correction is complete, we should see a continuation of the uptrend and with substantial force.

Following chart shows the discussed wave structure:


From a sentiment perspective, recent declines in enthusiasm and rejection from SEC supports this interpretation of the wave structure. An approval of the Bitcoin ETF from SEC would have suggested a major top in Bitcoin because of mainstream approval.

Other Developments

Along with technical reasons, there are a multiple geo-political and policy reasons that could really support Bitcoin prices, including:

  1. Elections in Europe, especially France
  2. Impact of US policies on the world e.g. protectionism 
  3. Potential inflation scare
  4. Downturn in U.S. economy. U.S. economy has been rising for the past 8 years. A bear market/recession is overdue.

Where can it go? 

If Bitcoin starts rallying, it could touch $3K, followed by $5K in 1-2 years. Longer-term, there are projection for $13K. But we will see the market action one day at a time. We will continue to evaluate our indicators to decide when to add and keep an eye on the Market Classification Model to identify exit point, if Bitcoin enters a bear market.

In today's investment environment where Bonds and Stocks are very expensive, Bitcoins provide an alternative for investors to not only diversify their portfolio but also potentially grow it at a fast pace. Its like an options strategy, in case you need to protect yourself with diversification but with one big advantage - there is no expiry date!

Our services

At Understand, Survive and Thrive, our goal is to produce consistent, uncorrelated returns using unique analysis techniques, that will enable your portfolio to beat the market over any economic cycle and provide you the peace of mind to stay with the strategy. We don't believe in beating SP500 every single month. And therefore, if someone wants to try our strategies just for the short-term, we will suggest that they will be disappointed at some point. Like one can use Bitcoin for investment and for diversification, one can diversify their investments without Bitcoin and that's our goal.

Penta Capital Strategies will start running these strategies in Q2-2017. If you are interested in investing, you can register below and we will send an update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription.

Thursday, March 16, 2017

Next IPM Model Turn Window

After briefly topping at the last turn date of Feb 28, 2017 (link), market rallied yesterday on Federal Reserve's announcement. 

Market Condition

  • During the correction since Feb 28, market did not generate any sell signals. In fact, it generated several buy readings from oversold perspective. 
  • At the same time, Sentiment as subsided in the past few weeks, which will provide fuel for this rally to continue. 
  • From a government perspective, they are busy with controversies and will not be able to influence the market. 
  • Furthermore, Dutch election results were positive for the overall geo-political situation

Hence there are no significant headwinds in front of the stocks right now.

We remain long the stock market because Market Classification Model remains bullish, which turned bullish on stocks in July 2016 and has remained bullish ever since (2017 Investment Performance). However, it is critical to understand potential future turn dates.

According to latest Inflection Point Model re-run, stocks will likely experience turbulence in the first week of April. Following chart shows the IPM model output.
IPM Model turn date is scheduled for April 5 (+/- 4 days). Most likely, this will turn out to be another intermediate top, which will last till majority of companies start reporting their earnings in mid April. However, it will be sufficient enough to make bears out of many longs. 

We will continue to evaluate the market conditions for any sell signals, as we approach this turn date. In the mean time, it seems like this rally could continue for another ~2 weeks.

If your interested in free e-mail list or in paid services like Market Classification Model, please fill-out the form below.

Monday, March 13, 2017

2017 Investment Strategies' Performance

We started tracking investment performance in real-time investment fund last year. Last year we launched conservative strategy and it yielded 12.2% returns versus SP500 returns of 12%.

Strategy Overview

Our goal has been to develop market neutral strategies that would enable investors to invest in any market environment with the goal of beating the market over the long-term, while ensuring consistent investment and reduced panic reactions.

We reached this goal by developing a proprietary index that has long-term Beta of -0.08 and has a R2 (correlation factor) of 0.1. In other words, both of these measures suggest that the benchmark is uncorrelated with the market (SP500).

We leveraged this proprietary benchmark and clubbed that with additional analytical techniques to develop following two investment strategies, that are being offered to Penta Capital Strategies' clients for investment:
  1. Enhanced Conservative
  2. Aggressive
Furthermore, two more strategies are in Beta testing phase, which will be rolled-out in 2018. 

January 2017 Performance

Following chart shows performance of the SP500 with dividends in January alongside performance of the proprietary Benchmark, and the two investment strategies, available to investors.
Context: January was a time when market uncertainty was very high. Investors were concerned how the market will react after the new president takes the office, especially after such a nice run in the equity markets in November/December 2016. Lastly, there were some executive orders that took the world by surprise and caused a lot of confusion even for the investing world.

February 2017 Performance

Following chart shows performance of the SP500 with dividends in February alongside performance of the proprietary Benchmark, and the two investment strategies, available to investors.

Context: In February, Trump rally resumed while the investors started pulling from stocks in easy February after EO related confusion. It was a time when our proprietary strategies did not perform as well. And the reason is that we stay market neutral with focus on consistent returns through undervalued assets. Since February turned out to be a month where expensive assets became even more expensive, our investment strategies didn't result in amazing returns.

Conclusion

Our goal is to produce consistent, uncorrelated returns using unique analysis techniques, that will enable your portfolio to beat the market over any economic cycle and provide you the peace of mind to stay with the strategy. We don't believe in beating SP500 every single month. And therefore, if someone wants to try this strategies just for the short-term, we will suggest that they will be disappointed at some point in the near future. 

Penta Capital Strategies will start running these strategies in Q2'2017. If you are interested in investing, you can register below and we will send an update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription

Thursday, February 23, 2017

Market Behavior and Impact on Gold


Market Overview

Markets have rallied very significantly. First burst of the rally was after election till mid-December and the second burst has been from end of January till today. Impressively, our proprietary Market Classification Model remained long stocks during this entire period. Model turned bullish soon after Brexit and has remained bullish since July’16.

Although in the hindsight one can easily say that the market rallied and it was prudent to remain long throughout this time, most of the market participants did not stay long. In fact, there have been significant bursts of pessimism during this rally. For example:

  • Brexit induced anxiety
  • Election related stress
  • Post-election disbelief
  • Post Executive orders convolution

However, these kind of market panics are the very reason why this market has been able to rally this far – Market likes to climb a wall of worry.

Now that stocks have rallied sharply over the last two weeks, we are approaching a period of consolidation. Consolidation doesn’t mean a sharp decline rather a period of sideways action like we saw in January, to digest recent gains. A potential scenario is market topping towards the end of February, according to Inflection Point Model and then consolidating till next earnings reports to justify high prices.

Once this consolidation phase arrives, other assets like Gold are likely to outperform.

Gold

Gold has been consolidating for some time. And this consolidation is supported by a series of higher highs and higher lows, which means that the next stage rally could be very significant. Gold also remains in a Bull market and would be an ideal candidate for a continued rally.

Following chart shows Gold performance over the past 2 months, where a steady uptrend is clearly visible.

 
Gold stocks are also tracing out higher highs and higher lows. In fact, following chart shows a potential head and shoulders pattern being crafted out by the Gold stocks. Once this pattern is completed, Gold miners can easily make a run for the summer 2016 highs.


 Latest MCM report included details about Gold’s uptrend and where the trend is with respect to the overall bull market.

Upside potential is further amplified by the fact that Gold performs very well in an inflationary environment and with rising interest rates, we are likely entering an inflationary environment.

If your interested in free e-mail list or in Market Classification Model, please fill-out the form below.



 

 

Wednesday, February 15, 2017

Next Market Turn Window

Market is on a tear and there is no sign of backing-off. Sentiment as subsided in the past few weeks, which has given fuel for this bull to ramp on. Furthermore, there are no sell signals on the horizon that suggest immediate danger.

We remain long the stock market because our Market Classification Model remains bullish, which turned bullish on stocks in July 2016 and has remained bullish ever since. However, it is critical to understand potential future turn dates.

According to latest Inflection Point Model, stocks will likely experience turbulence towards the end of Feb 2016. Following chart shows the IPM model output.


IPM Model turn date is scheduled for Feb 28 (+/- 4 days). Most likely, this will turn out to be a top. However, we will continue to evaluate the market conditions for any sell signals, as we approach this turn date.

If your interested in free e-mail list or in paid services like Market Classification Model, please fill-out the form below.

Tuesday, February 7, 2017

2017 Investment Themes

There are many prominent investment themes for 2017. Investment themes help investors understand the broader investment landscape based on historical performance of different asset classes and their current catalysts. This analysis helps in properly positioning one's portfolio to take advantage of the winds of change.

US Stock Market

SP500 and DJIA have experienced an amazing 1 year rally. Since Feb 2016, markets are up ~30%. With such a sharp rally, it won't be wrong to expect a sideways/downward market correction. Since corrections can come in different forms, sideways correction with time will help in digesting last year's gains just like a sharp fall in prices.


Lofty price levels can be supported by equally good earning numbers, which can provide further fuel for the rally. However, with the uncertain political dynamics in the U.S. we should be prepared for any sudden decline in the US stock prices like 1987 market crash - not a certainty but a word of caution.

Note: Next earnings will be reported in mid-April 2017


Emerging Markets

On the other hand, emerging markets finished a 5 year long correction in 2016. As US markets rallied, emerging markets corrected from 2011 to 2015. Since bottoming in 2016, emerging markets have rallied and looks like they have formed an inverted head and shoulders pattern. Once they breakout, emerging markets could go up to there 2011 highs. Therefore, this is an area to keep in mind.


Precious Metals

Gold had been declining since 2013. It bottomed in early 2016 and then rallied sharply. However, since mid-2016, Gold has again experienced a major pullback. However, we think that this pullback is a buying opportunity and would result in higher prices. 

Following chart shows a potential inverted head and shoulders pattern being formed by gold. Once this pattern is complete, gold can make an advance towards all-time highs around 1900. However, the first target would be to reach July 2016 highs. Therefore, gold is an area which one should keep on his/her radar for investment opportunities.


Precious metals are also influenced by the US dollar. US dollar has rallied very significantly over the last two years or so. Therefore, as the US Dollar corrects, it will provide fuel for a rally in the precious metals complex.

Bonds

Bond have been in a long-term bull market. In fact, its one of the biggest bull markets in history of bond prices. However, the bond price cycles are turning and so are the prices. Now the question is whether the Bond Bull has ended or it still has some life left.

Bond prices started declining in mid 2016 and have reached a critical area. Prices should reverse to the upside soon or they will mark the end of the Bond bull, which can be disastrous for the debt-laden global economy. We will keep a tab on the Bond market to understand clues for the future of the US economy.


Investment Options

We are working very hard to make these strategies available for investors. Penta Capital Strategies will be running these strategies starting in Q2'2017. If you are interested in investing, you can register below and we will send you update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription

Saturday, February 4, 2017

January 2017 - Performance Review

January was an interesting month for the markets. In the beginning of the month, markets continued to go sideways, which they had been doing for past couple of weeks - since mid December 2016. Then came the earnings and market zoomed higher. Although this rally was not as significant as post election rally in 2016, it did bring back a lot of enthusiasm. The rally continued with President's oath taking. However, it experienced some difficulty towards the end, with the immigration executive order confusion and protests across the United States.

Following chart shows how SP500 performed in the first month of 2017:


To summarize January action, it was a volatile month. Volatility does not only impact our portfolio, it hampers our investment decisions, self-confidence and risk-taking abilities. In order to reduce the impact of volatility and realize long-term consistent results, UST team develop proprietary strategies based on our 8+ years of investing experience, as documented in this blog and other sources.

These strategies went live with real money at the start of 2016. Their 2016 performance has been documented here (link). Our team is currently working on more than 5 strategies. Two of these strategies have moved to production, two are in beta phase and others are in final development phases.  

Investment Strategies

Two strategies (one conservative and other aggressive) will be used by Penta Capital Strategies for clients' investment needs. These strategies are customized to meet the performance and risk profile needs of investors. These strategies utilized strategic and tactical portfolio allocation techniques, along with proprietary market timing methods to generate Alpha with extremely low correlation with the benchmark SP500. Hence, have very high Sharpe Ratios.

Following chart shows January 2017 performance of Conservative and Aggressive strategies, directly taken from the brokerage account.

Conservative strategy performed 4.53% and Aggressive strategy gained 11.36%, while SP500 was up 1.90% in January.

Performance of these strategies is also tracked on OpenFolio to see daily changes. Following chart shows daily YTD performance for the Conservative Strategy:


Interested ? 

There are two ways to follow and invest in the strategy:

  1. Penta Capital Strategy is the investment arm of Understand, Survive and Thrive. You can connect with Penta Capital Strategies (e-mail) for details.
  2. Utilize some of the offerings that UST offers (link). We will officially start sending our Market Classification Model updates in February 2017. And plan to add additional services in the next few months.
Overall, we will actively be working on this blog to ensure that all the services are streamlined. If you have any questions please feel free to comment or interact with the team via Twitter @survive_thrive. Please use the below sign-up button to register for free newsletter or other services: