Financial Markets Outlook — July 2020

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Disclaimer: everything written in this article are of personal opinion, and should never be taken as financial advice.

I’m writing these market outlook posts periodically to put my thoughts to paper and to hold myself liable for my investment theses and decisions, so hopefully going forward this is something that’s good for both myself and you, the reader.

In my previous market outlook post in May, I wrote that I was bearish on the stock market and bullish on gold and bitcoin. Well, it seems that I was only 50% correct in my predictions.

Thanks to the Fed and its humongous money printing machine, the stock market has become completely detached from the real economy over the past couple of months. Despite companies mostly having been in shutdown mode with no business, their stocks continued to skyrocket to new heights thanks to liquidity injections and buy-back schemes. I was wrong to doubt the Fed and its money printing — lesson in there, “Don’t Fight the Fed.”

Precious metals, on the other hand, have done very well, with gold reaching new all-time-highs this week (>$1,900 as I write this) and silver also skyrocketing. This clearly shows that despite stocks making a ridiculous “V” shaped recovery thanks to its departure from reality, people are still concerned about the chaotic and unpredictable state we are in and as a result are investing heavily into “risk off” assets such as precious metals.

Bitcoin, on the other hand, has been sitting flat and lagging behind gold’s explosive price movement. This was a bit frustrating for an asset dubbed “digital gold” for the 21st Century whose volatility has historically been very high. However, I think this was understandable because during the past two months, all of the attention have been on the stock market — Robinhood retail traders, Dave “Davey Day Trader” Portnoy, Tesla’s crazy stock price, etc. The trading volume of the SPX index for example, has nearly been doubled since the pandemic started.

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The S&P500 seeing unprecedented volume since the pandemic started

However, since last week the stock markets have looked to be a bit exhausted. Tesla stocks had just finished going parabolic and the rest of the market looks like it needs to take a breather right now. In this moment of indecision, people have continued to dump money into precious metals because the shiny rocks resemble reliability in the minds of many.

Now might finally be Bitcoin’s time to shine and catch up to its physical scarcity cousins. After sitting in a tight range and behaving like a stablecoin for weeks, bitcoin has just now broken out of a 3-year triangular range dating back to the previous bull cycle top back in December 2017 (I actually screenshot-ed the chart below yesterday and the price of BTC literally shot up above $10k an hour after). This breakout is an ultra bullish signal and could be the springboard moment that takes BTC to wildly new highs — I sure am hoping that’s the case, and let’s see what the future beholds. As I write this, BTC is now consolidating above $10k — the next leg up seems imminent.

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Bitcoin breaking out of a 3-year triangular pattern (July 26, 2020)

While I am “bitcoin maximalistic,” I do not let any biases stop me from observing other opportunities. A good friend who is the most successful trader I personally know told me to watch Ethereum a few months ago, and I have to say the chart for Ethereum looks incredible. The stories in the background are also aligned perfect for Ethereum to make further explosive moves upwards — DeFi mania, the elusive Ethereum 2.0, and just general interest and value accrual in $ETH as a result of all the hype on other ERC20 shitcoins. I am long ETH/BTC using Bitfinex while holding mostly BTC, just so I don’t miss the huge upside on Ethereum while not directly converting a scarce asset to an inflationary asset.

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Very bullish-looking long term chart of ETH/BTC, new higher high’s being made

So in summary, my market outlook now is as follows:

We’ll check how I did in a couple of months.

Originally published at The Sovereign Millennial on July 27, 2020.

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