Category: Investment Discussions

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.

LiteCoin

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:

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)

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.

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.

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.

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.

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

Connolly Financial Advisors, LLC
Thejoyofinvesting.com
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,

Tom

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.

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,

Tom

The named entities or Blockchains set forth below do not represent recommendations to purchase or in any way reflect investment advice. One of the key variables that is critical for deciding to invest is missing. That variable is the current valuation of each token or asset vs the overall market and a reasoned forecast of future performance vs the market. What is presented below attempts to inform and to encourage research, to learn about each, and to come to an opinion of whether any of them or all of them strike you as being an important participant in the future development of digital asset platforms. Charts of technical price levels and movements are presented to educate those unfamiliar with price patterns. These examples of real price activity show how prior price levels may be used to identify market points of price resistance or support. Use this information as you see fit, but it is recommended that you see this as an educational/informative tool only. This information is only part of the array of focus areas needed in making any investment decision, accordingly, it is best to not rely on one type of analysis for your capital allocation decisions.

Reading the Tea Leaves

My financial models show the potential for a near-term price increase of $2,000 for Bitcoin, $250 for Ether, and $50 for LiteCoin. The basis for this point of view comes from the current comparisons of:

• • • For the past twelve days the daily closing price of Bitcoin has exceeded the 200 day Moving Average
    • Comparing the daily closing prices of Bitcoin, Ether, and LiteCoin to the 50 day Moving Averages reveals the following:
      1. 1. Bitcoin has been above the 50 day MVA for 12 straight days
         2. Ether has been above the 50 day MVA for 6 of the past ten days, with the last 4 days all above the MVA
         3. Litecoin has been above the 50 day MVA for the past 4 straight days
    • Price Volatility has been declining.  Over time, there have been  inflection points where the level of price volatility bottoms or peaks.  Currently, the ten day average of Bitcoins price volatility is at 1.28%.  Ether price volatility is at 1.84%.  LiteCoins price volatility is at 2.23%.  These are very low levels of price volatility, and they compare to the most recent high volatility peaks of 7.56% for Bitcoin, 7.65% for Ether, and 7.68% for LiteCoin.  The low level of price change portends a period of greater volatility, and the factors at play would point to price changes to the upside (there are some contrary pieces of information that will be discussed below).

    Crypto Volatility
    

    • The ten day average of price and volume show a turn upwards in price for Bitcoin and LiteCoin, and a more gradual upward slope for Ether.  This is happening at a low point in ten day average volume, yet the action shows higher volume in up days and lower volume on down days.  Internally, the bias is higher based on the greater participation of buyers over sellers.

The charts of the above metrics are presented below:

200 and 50 day Moving Averages for Bitcoin, Ether and LiteCoin, plus the delta between the current price and the 200 day MVA price

 

Bitcoin

Ether

LiteCoin

Other important considerations:

Futures trading in Bitcoin is showing less daily volume but expanding Open Interest. This is similar to the decline in the daily spot trading volume noted above for Bitcoin, Ether and LiteCoin. This decline in volume would normally trouble me, but the expansion in Open Interest tells me that a greater number of positions are being taken in advance of an anticipated price move. This does not indicate which way the price may move, but it does tell me that there is more participation in the market, and that is important. Coupling this with the other factors noted above, and I view this as a positive, with the increase in daily trading to occur once the volatility in prices returns, and I expect that volatility to be to the upside based on current prices flirting with and recently exceeding the 200 and 50 day moving averages.

Bitcoin Global Futures Open Interest in billions of U.S. dollars

The last point, which is the real fly in the ointment for me, focuses on the number of BTC wallets that are active. YTD, there is a 22% increase in wallets, and that is positive from a growth perspective. My concern is that the wallet growth over the past month has slowed significantly, which is not typical of a price break-out to the upside. Price increases are typically preceded by a meaningful expansion in active wallets, and so this perplexes me to some extent. I watch this almost hourly for signs of an uptick that would further validate my thinking that we are close to a meaningful price increase in Bitcoin, Ether and LiteCoin. I will keep you posted on this as it evolves, so check in here frequently for updates on wallet activity.

That about covers it for now. The charts above will be posted to the Charts section of this website. I may add other charts, but not on the front page, so check the Chart section for other chart related data and for the wallet updates.