If you want to trade the equity markets you need a signal that leads the market moves.
It is a holy grail for trades.
Right now it’s out there for all to see.
It is bitcoin.
The US/China trade war is perhaps the driver of the market now. It is in fact a little amazing that stocks aren’t in a smoking crater because of it. However lucky this escape is so far, no one would be shocked if this developing situation triggered a market rout.
But first let us look away.
Whatever is going on behind closed doors is not something we are allowed to know but rest assured that there are billions at stake and billions in Chinese yuan. The deal is: trade war worse, yuan down. Trade war progress, yuan up.
This translates to increased trade war anxiety in China, bitcoin up. Less anxiety, bitcoin down.
Bitcoin is the ‘trade-war-ometer.’
Here is the proof:
Now the key thing to note is that there is lead in this move. Lots of lead. Not only is bitcoin leading as a signal on the day, but it is also leading a day or two ahead. This is a gift to traders.
For bitcoin investors it’s little help because it’s feast if the trade war goes nasty and famine if it doesn’t and it’s anyone’s guess what the two mercurial sides will whip up. For equity traders it’s a gift because for now this signal is not being traded away.
Of course it’s only a high probability signal, not a message from the gods of Olympus, but a weak BTC versus a weak Dow on China trade fears, is a strong indication to buy the dip. BTC up, Dow down on trade fears…. You can fill in that blank yourself.
Remember this trade is driven by this cycle:
- Get out of yuan fast, buy BTC because you can get it out any other way. (Up goes BTC in a spike)
- Sell BTC for currency. (Down goes BTC the next day in Europe/US in a spike)
- Hold BTC to reverse it back to yuan when trouble passes. (BTC doesn’t spike down)
While this is a pattern also coming out of Iran, China is the kingpin.
So what to do?
Set your levels to acquire, hold, sell and stick to your plan.
Clem Chambers is the CEO of leading private investors Web site ADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide, out now in paperback and on the Kindle. In November 2018, Clem won Journalist of the Year in the Business Market Commentary category in the State Street UK Institutional Press Awards. The awards recognise outstanding performance in institutional financial services reporting in the UK.