12-3-17 Market Commentary


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Market Breadth: With this past week’s market fractional decline, our Bull/Bear Point and Figure Ratio at 1.34 fell from 1.46 last week, decliming within bullish territory. The total count of securities in bullish or bearish patterns increased 2% to 3141. The count of bearish stocks increased 7%, while the count of stocks in bullish patterns decreased 2%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now fourteen weeks in bullish territory. Paid subscribers have access to the OpenOffice Calc data from which the chart is generated.

The well known market breadth indicator, the NASDAQ McClellan Summation Index (NASI) rose 86 points for the second advance in seven weeks. At a positive 210.8 points, it  continues below all seven tops in the last 30 months, and continues above all five bottoms in the last 30 months. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in neither Accumulation nor Distribution mode with average daily volume higher than the prior week. In the last two weeks the NASDAQ had two (2) Accumulation days and two (2) Distribution days. (Accumulation days are counted when the index closes up on higher volume than the prior day while Distribution days occur when the index closes down on volume higher than the prior market day.) Last week, the NASDAQ ended in neither Accumulation nor Distribution mode on lower average daily volume.

Momentum: The CCI(20) daily in a Woodie’s Up trend is now at +25.17, down from +188.55 last week. At Wednesday 11/15 close, the CCI(20) daily was within the +/- 50 range for a ZLR (Zero Line Reject) pivot and Long entry signal at Thursday 11/16 close. At Wednesday 11/29 close, it dropped below +100, so we exited the trade at Thursday 11/30 open. The result of this trade simulation was a gain of 58.35 points on the NASDAQ but a loss of $0.07 per share of QQQ.
In Woodie’s CCI trading system, six consecutive bars above or below zero are required for a change of trend. The Weekly CCI(20) of the NASDAQ Composite Index began a Woodie’s up trend eighty-three weeks ago, while the Daily CCI(20) began a Woodie’s up trend twelve weeks ago.
The CCI(20) weekly at +125.77, down from +153.02 last week after forming a ZLR (Zero Line Reject) Long entry signal for Tuesday 9/5 open. Our rule is to stay in the trade until the CCI(20) drops below +100. We will continue to follow the result of this trade simulation in next week’s commentary.
Industry Rotation the last two weeks: All of the top five industries are  positive and four of the bottom five are negative. Summary: Brokers, Banks, Oil Services, and Retail on top; Some tech, Gold & Silver, and REITs on the bottom. Bullish: S&P Retail continues in the top five. KBW Bank and Brokers have entered the top five. Gold & Silver PHLX has entered the bottom five. Bearish: REITs continues in the bottom five. Computer Hardware, Disk Drives, and Networkers have left the top five. Semis PHLX, Computer Hardware, and Comp Tech have entered the bottom five. Oil Services has entered the top five.
Focus this week: With Bitcoin surging, we pause to consider the long view of things. in this analysis from www.medium.com/@rusty_lightning/The Three Economic Eras of Bitcoin“. The following are some key points.

  • The way the bitcoin ecosystem will play out is written in the mathematics of its consensus rules; we should all know the three phases it will go through.
  • First Era: Satoshi’s Free Offer (2009–2014)
    …there was surprisingly low awareness that this phase of “free money” was not the natural state of bitcoin.

  • Second Era: Satoshi’s Subsidy (We Are Here)

    “Bitcoin is shifting to a new economic policy, with possibly higher fees.”

    — Jeff Garzik https://medium.com/@jgarzik/bitcoin-is-being-hot-wired-for-settlement-a5beb1df223a

    Block propagation was improved by a global network of node relays[11] and new strategies for better propagation[12]. Fee estimation algorithms became more sophisticated[13], along with restoring the ability to replace transactions (by increasing the fee)[14] and having the recipient boost transactions[15].

  • Third Era: Self Sufficiency (2028? onwards)

    “Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.”

    — Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System

    Once the “free money” bootstrap phases of bitcoin are complete the system enters the phase of self-sufficiency, where users bear the cost of securing the network against double-spending (currently billions of USD each year[21]). This is phased in by halving the block subsidy every four years.[22]

    The Third Era Will Start With Civil War

    The battle lines will be similar to the early Second Era New York Agreement, but this effort will be more nuanced and far broader, with mainstream arguments such as:

    1. The founder was not an economist; Economists recommend inflation around 1% to encourage spending.[28]
    2. The support burden of the network should be shared by the wealthy bitcoin holders, not just those actually using their bitcoin.

    The counter-arguments are:

    1. The 21 million bitcoin limit was a key reason for bitcoin’s success,
    2. The system’s founder made a conscious and deliberate choice for bitcoin to be a store-of-value over subsidizing payments, by eschewing inflation, and
    3. Changing the rules now is stealing from early adopters (notably, but not mainly, the anonymous founder).
  • Although this crisis is entirely predictable from first principles, and laid in the bedrock of bitcoin, it may yield surprising results. And even if bitcoin’s supply remains capped[31], the drama it can produce is limitless[32].

–Donald Pirl www.s2pmarketsignal.com

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