Risk On, Greed Cycles
On 10/31/2019 our team sent out a Parabolic Correspondence newsletter titled “Risk-On!!”. The trigger for such a bold newsletter was the fact that the SPY monthly chart closed above its long term 2.618 Fibonacci level. From that point on the possibility of a new SPY all-time high was on, with a parabolic ascent a likely scenario.
In this publication, we will attempt to shed some light on the historical correlation between traditional market Risk-On cycles and BTC. Keep in mind Bitcoin’s last %2700 move from $600 to the previous all-time high of $20,000, coincided with the SPY’s Parabolic ascent from one long term Fibonacci level, to the next. The 1.618 to the 2.618.
Today on December 20th of 2019, the stock market is raging, bulls are in charge amid much political uncertainty. The China trade deal is still in uncertainty territory, President Trump is facing impeachment, and just 2 months ago the media was touting the possibility of a recession. Yet the SPY has been raging. Even though the index has only risen %5 since our publication, the magnitude of the move is much less important in Fibonacci setting.
The index’s next overhead long term Fibonacci resistance level is $386, which would be the target for longs. The one concerning element is the lack of a weekly corrective retest of the 2.618.
The above chart has 3 red circles, they highlight what a proper retest looked like on a chart. The SPY’s .786, 1.0, and 1.618 were retested in savage form. Shaking out leveraged bulls and trapping bears before the index took off to new heights. Liquidity extremes were tested. The current move comes without a retest, which makes the rally still speculative in nature.
Touted by the mainstream media as “non-existent” our firm has proven time and time again that correlation cycles exist. Correlation between these assets is never 1–1. During corrective times it varies from non-existent, to inverse, to direct. But the charts below historically indicate that during Risk-On cycles, a direct correlation is strong!
During November of 2012, after the SPY was retesting its .786 Fibonacci level, Bitcoin had just retested it’s 0.236 retracement level. During the SP’s risk-on move from the .786 to the 1.0 Bitcoin rallied from $15 to $234, while breaching the most known extension levels in one swift move.
Three short weeks after the SPY retested the 1.0 Fibonacci level of its previous all-time high, the week of July 15, 2013, Bitcoin had retested it’s 2.618 level and began a new ascent.
The following BTC move was another parabolic run from $80 to $1,144.
The 1.4–1.6 Corrective Phase
As the SPY reached the 1.414 Fibonacci level, Bitcoin had already peaked and entered a corrective phase. Following the SPY’s run from 1.0 to 1.414, the index’s road to the 1.618 was not smooth and price action was choppy and corrective. Hence, the cycle was no longer a Risk-On one.
Both charts appeared to be corrective, the SPY seemed to have formed a triple top and BTC a triple bottom. Until the SPY once again breached its previous all-time high.
Kissing The Moon, 1.618 — 2.618
During that same week of November 7th of 2016, after the previous corrective phase. As the SPY successfully retested the 1.618 marks with the 2.618 as the next destination; Bitcoin had retested the .5 Fibonacci level of its new coinciding retracement and began the soaring run from $668 to $20,000.
New Era, New Fibs? Risk is ON... BTC Do Something!
Maintaining the long-term Fibonacci extension of the SPY, or applying a new one based on the last corrective phase, it appears that traditional markets are in a Risk-On setting. Yet BTC has not proven to be a force to be reckoned with.
Currently stalling at the 0.236 of the last major correction as the SPY is full-on Risk-On.
Is BTC awaiting a SPY retest, is the cryptocurrency forever doomed and well beyond its Bubble-Esque apex? Will history repeat itself, or are we headed into the previously uncharted outer space of speculative uncertainty?
Let us know your thoughts in the comments section, we’d love to hear what you have on the subject.