The Current Market Sell-off

Today we find the Dow Jones Industrial Average down by 1,000 points, the S&P 500 down by 119 points, and Bitcoin down by $400 per BTC. Why is this occurring?

The stock averages have been out of touch with reality for quite awhile. The valuation measures of Price to CashFlow are reflective of a Bubble. The measures of company Enterprise Value divided by Earnings Before Interest, Taxes and Depreciation/Amortization are at levels that defy historical standards. A return to the mean would result in an additional 25% decline in stock prices, or a further 5,000 point decline in the DJIA and an 800 point decline in the S&P 500. Stocks are and have been in a dangerous place compared to history.

The decline trigger has been the impact of the Corona-virus on psychology and on economic trade.

Why then has BTC declined to the extent it has?

Many high risk investors, those looking to leverage their positions to accelerate gains by buying on margin (taking out loans to buy stocks), need to generate cash to meet margin calls on their equity positions. I posit that these equity holders are also Crypto-asset holders, as the profile of high risk and high reward mindsets would likely see the same holders of both assets, stocks and crypto. In a stock market sell-off, the need to raise cash to pay back loans must come from somewhere or something. I think that something is Bitcoin, and that is why it is being sold-off today, to raise cash. Further, to the extent people have used loans or credit to buy Bitcoin, they also face margin calls on their crypto positions, and the potential for an accelerated decline in Bitcoin is real. If it occurs, I believe it will be an opportunity to reassess the entire asset market for under-valued or Baby out with the bathwater situations. Certain stocks and certain Crypto assets will be in that basket.

Stay Alert and informed.


The 200-Day Moving Average Indicators are all positive

In the Charts section are the current graphs of the 200-Day moving averages vs the 50-Day moving averages. The cross-over is typically a very strong sign of continued price changes in the direction of the 50-day MVA.

Below is the LiteCoin #LTC chart. You can see from the past that the blue dotted line continues its path in the direction of the 50-day MVA for an extended period.


The price movement higher for the crypto-currencies is being matched/exceeded by the growth in value of tokens of non-currency crypto-assets.

While the past five days saw a pull-back in value, the Y-T-D gain of 56.70% remains impressive. Should the signals from the 200-Day and 50-Day moving averages, along with higher new highs and higher new lows, coupled with higher volumes in the Spot and Futures markets, continue to show strength, then it is likely that value in the form of Market capitalization will continue to grow.

Market Cap change of 93 crypto-asset tokens for the year 2020 by week is as follows:

Important growth in the Futures Markets carries through to higher prices in the Crypto sector

The Crypto-asset market has been exceptionally strong during the first two months of 2020. In many ways this was foreshadowed by the growth in open interest in the Bitcoin and Ether Futures markets. The expansion since October 2019 has been dramatic, as the number of Futures contracts have tripled since Thanksgiving (November 2019).

Bitcoin Futures

Change in Market Cap of tracked 93 tokens (excluding currencies Bitcoin, Ether and LiteCoin)

Broad positive signs of Market internals for Crypto-assets

Across the board all indicators are presenting positive signals

New Highs and Lows for BTC and ETH are rising

Volume in the spot market is rising

Open Interest in the BTC and ETH Futures markets are rising with accelerating growth

The 50-day moving averages of price for BTC, ETH and LTC are bumping up against the 200-day moving average, and look likely to cross-over in the next week.

Go to the Chart section for additional visuals.

Piercing the 200-Day Moving Average

The engines are revving

Previously, I noted the alignment of indicators as an indicator of forthcoming price strength in the Crypto-asset sector. That alignment is being reinforced by the most recent data, and key price levels are within hailing distance. If Bitcoin, Ether and LiteCoin prices rise by $220, $8, and $5 per coin, respectively, then one of the key positive indicators of exceeding the 200-day moving average will be in place.

Alignment is one of the Keys to Winning Decisions

Deciding when to act is a difficult process given the emotions that often sway decision making. Keeping emotions at bay, focusing on facts and indicators from the market, and trusting in your analyses are often the path to success.

I look at many pieces of data in weighing when to act versus observe. In the Crypto sector, the number of positive buy signal indicators are aligning in a way that I find very compelling. The focus for me is to look at behavior of the market participants (are they active or passive in engagement with the many assets that form the market), the combination of price and volume moving in tandem to give support to market confidence that it is time to be long or short, are changes in price trends overcoming historic points of resistance, are daily price highs exceeding prior days highs and are daily lows in price exceeding prior days lows in price, and are prices within a day expanding the boundaries between highs and lows, with closing prices at or near the highs.

The combination of all of the above, when aligned in the same direction, provides a basis for taking action. Right now, my models are ALL confirming that it is time to invest, and so I have and am doing so. This is not investment advice for any reader, as my models are complicated in structure and in this young market are not validated with deep historic back testing, yet they have encouraged me to the point of getting off of the sidelines. We shall see how these assets perform from this point forward until I see a sign to reverse course.

BTW, the absence of volume that troubled me in the posts below is fading. Thirty day volume average just surpassed 60 day volume averages for BTC. The market is more active and that is a positive event in a moving market.

Are BTC and ETH internals signalling a price change? Signs are falling into place

Time to get to the Starting Line.


I have one question: “Where is the volume?” I expect it to come, as the other signs begin to align for a move higher.

The Crypto asset market is showing all of the signs of a significant move higher. The only piece missing is a consistent and sustainable increase in the daily trading volume of Bitcoin and Ether. Stay tuned…………

Now why are the pieces of the puzzle so positive?

    • First and foremost is the increase in number of addresses/wallets opened in December for both BTC and ETH. Please note that BTC data is a week behind, while ETH is current through this date.  In both cases, the new wallets opened in December are equal to or exceeding the months high of April thru June 2019, that set-up the moves to $13,000 for BTC and $340 for ETH.
    • Total BTC and ETH wallet/addresses for 2019 grew by 37% and 54%, respectively.  BTC wallets grew from 32 million to 44 million.  ETH addresses grew from 54 million to 84 million.
    • The 10 day average price and volume metric are close to two year bottoms and showing signs of turning up.
    • Price volatility has fallen to lows that have preceded large moves higher in price.
    • The activity in the Futures market for both BTC and ETH are hitting highs, with Open Interest expanding as institutional money is taking positions in advance of January 2020.

Charts will be posted shortly.

Year-end 2019 Summary Review of the Connolly Financial Advisors Stock Portfolio

The 2019 performance of the CFALLC 187 Portfolio showed a composite price gain of 32.57%

Connolly Financial Advisors, LLC
December 10, 2019

The 187 companies I track each year are varied in terms of industry and market cap. From a market cap perspective, the dollar range of the portfolio reflects mkt caps of $1 trillion to $159 million. Each company is weighted against the overall portfolio based on:

• Operating Margin
• Price to Cash Flow multiple
• Cash Flow growth rate
• Enterprise value to EBITDA

This weighting is used to identify potential undervalued or overvalued stocks.

From an overall market perspective, I compute the cumulative portfolio metrics that exist now and contrast them to the same metrics of the portfolio for prior periods covering more than ten years of data. This yields a perspective on the market’s overall state of value.

The data as of December 2019 reveal operating results that are underperforming history. This operating under-performance is contrasted with stock prices that are over-performing history. The key observations are as follows:

• The Price to Cashflow multiple of 25.14 times at December 9, 2019 compares to the historic average of 18.34 times. The current prices to cash flows are very close to historic highs that have typically preceded market sell-offs.

• 45 of the companies in the portfolio have lower levered cash flow in 2019 vs 2018, yet have higher stock prices than what existed at December 31, 2018.

• The forecasted cash flow growth rate beyond 2019 is at 9.42%, which is historically low and below the average growth over the past ten years of 10.55%

• 31% of the companies have lower cashflow in 2019 than 2018

• The portfolio value on a discounted cash flow basis is below the current price of the portfolio

• The median cash flow growth of the companies in the portfolio for 2019 is 6.58%, which is lower than each year since and including 2016 vs 2015.

• At the end of 2018, analysts forecasted cash flow growth of 15.15% for the portfolio. The actual growth is coming in at 9.20%

• The average share price is up by 31.8% yet the average cash flow growth is only 9.20%

• On a DCF basis, approximately 50% of the companies have stock prices that are above the DCF value vs the historic average of 33%

• The Dividend yield is under 1%

• Operating margin in 2019 for the portfolio is 13.15%. The historic average operating margin is 14.13%.

• The Enterprise Value to EBITDA multiple is 17.92 times. The historic average of EV/EBITDA multiple is 12.07 times.

• The discount rate needed to value the portfolio’s cash flow at current stock prices is 8.69%. The historic average is 12.11%. This is the rate needed to equate values and provides no future investment return from price appreciation. To realize a positive return, the discount rate needs to be below the 8.69%.

• The required return on equity vs debt in the market at December 2019 is 8.93%, which is significantly below the historic average of 12.25%. The market’s risk profile for equity is very low, below historic levels, in an environment where operating metrics are relatively weak and declining. There appears to be a disconnect between risk and reward.

• Since 2011, the debt of the companies in the 187 portfolio have risen by an annual compound rate of 12.5%, whereas the market cap has risen by an annual compound rate of 15.5%. For 2019 alone compared to 2018, debt increased by 14.19%, whereas market cap increased by 15.52%. Growth in debt in 2019 above the CAGR since 2011 vs the growth in market cap for 2019 that equals the CAGR is a concern, as debt in 2019 grew at an accelerating rate.

The data presented above will be presented within the next week  in chart format to provide context of current values versus historic values.

Finally, the assessment of current prices vs the discounted cash flow values reveals that 98 companies have future positive return potential and 89 companies have future negative return potential. At December 31, 2018, there were 109 companies with positive return potential and 78 companies with negative return potential. The forecast at December 31, 2018 of 109 companies with positive return potential compares to the actual of 155 companies out of the 187 that had actual positive returns in 2019, yet cashflow for 2019 underperformed as noted above, and operating margins stayed constant. This makes one wonder if the positive stock price performance overall is more aligned with the growth in debt of 14.19%, and the funding of stock buybacks. Something to think about.

Please feel free to send me any questions or comments you may have.

All the best and Happy Holidays,


BTC, ETH and LTC move higher today, 12/4/2019

Wallet growth and Open Interest in the Futures Market

December has opened with an acceleration in wallet growth and in Open interest for both #BTC and #ETH Futures. Wallet growth is running at the highest in the past two months. Open #Futures are hitting record levels for both BTC and ETH. This is the set-up I have been looking for. I do want to see this sustain itself over the next coming weeks to support a longer-term price move higher, but the quick pop in prices this morning EST, is confirmation that the underlying strength is supporting this price move higher.

More broadly, across the crypto-asset sector prices are rising in tandem with the move in Bitcoin’s price.

Seasonal Pattern

A brief note on December 2, 2019

I do not see anything that is compelling within the Crypto data at this time. The seasonal pattern is following its historical path of 2018, and if it holds, we should see buying activity toward the back-end of December.

There is a significant uptick in BTC and ETH futures activity over the past week or so, and that is encouraging. BTC wallet activity is modest, as is spot volume, leaving me on the sidelines after being a buyer during the last BTC price drop to the $6,500 level.

I will add some new information before year-end as the market provides direction.

All the best,