ARTICLES

Bitcoin's Collapse

We have said previously that cryptocurrencies like Bitcoin cannot be assessed using fundamental analysis – because they have no fundamentals. They have no balance sheet or income statement, and they generate no income for investors. For this reason, they can only be assessed technically - by looking at the charts.

In the absence of fundamental value, the price of Bitcoin is a direct and exclusive function of the collective belief of a segment of the investment population which has bought into the cryptocurrency idea. This idea is periodically disturbed by stories about corrupt cryptocurrency dealers, government’s that arbitrarily make laws about cryptos or Elon Musk blowing hot or cold.

Descending triple tops are quite rare in the charting world. For example, the share prices of both Steinhoff and EOH at different times made clear descending triple top formations before they began their respective collapses: Consider the chart of Enterprise Outsourcing Holdings (EOH) during 2015 and 2016:

You can clearly see the three tops, each lower than the previous one, followed by a massive collapse. Steinhoff is no longer listed, but it also made a descending triple top at around R90 a share before collapsing to less than R5.

Three-and-a-half months ago on 24^th May 2024 we posted a tweet in which we said that Bitcoin, “...has completed a "descending triple top" which is probably the most bearish formation. We expect it to fall heavily from current levels.”

Consider what has happened since then:

Here you can see the three tops which prompted that tweet – and the two further descending tops which have occurred since then.

The descending tops are caused by the smart money off-loading their usually very heavy holdings into the hands of less well-informed and usually very enthusiastic amateurs. At each top, the smart money’s profit-taking soon overwhelms the enthusiasm of other, usually smaller, investors causing the price to drop. The smart money then withdraws to allow the market to recover and investors to become excited again. When the price approaches the previous high, they begin selling again and the pattern is repeated.

As you can see, with Bitcoin, the level of enthusiasm has been strong enough to permit no less than 5 consecutive descending tops, but the most recent was characterised by an exhaustion gap which shows that the buying energy is now dissipating.

It is also important that on Friday last week, Bitcoin fell to $54069 – breaking clearly down through the 200-day simple moving average. Many less-sophisticated investors use the 200-day moving average as a key determinant – so we believe that, while there are bound to be rallies, there will not be any further notable tops.

Our advice remains what it has always been regarding cryptocurrencies:

“If you have them, sell them; if you don’t have them, don’t buy them.”  

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Capitec Revisited

Our first article on Capitec was published on Monday 19^th February 2018. At the time the share was trading for R820.94 and we pointed out that it had established a support level at around R800. We suggested then that this was a share well worth accumulating on weakness as a long-term

Rand Strength

The currency of a country can be compared to the shares of a listed company. If a company is expected to do well and make profits, then its shares will strengthen relative to other shares. If a country is expected to do well and prosper, then its currency will strengthen relative to other currencies.

Investor confidence in

Stefanutti Stocks

The construction industry is a high-risk industry from an investment perspective. Its fortunes are dependent on winning profitable contracts, usually from government or quasi-government organisations like state-owned enterprises (SOE). Projects often take years to complete and involve significant capital outlays. This makes their cash-flow management

Speculative Opportunity

PDSnet is mainly concerned with teaching private investors about investment and medium to long-term opportunities on the JSE. The foundation of this approach is that South African tax law treats any gain on a share held for longer than 3 years as a capital gain. In other words, holding a share for more than 3 years means that the investor will not be treated as

Scary Government Debt

Just like a household or an individual, a country’s government goes into debt because it spends more than it receives in taxes and other revenue. The important difference, of course, is that governments (unlike households or individuals) can actually create money out of nothing to finance their deficit if they choose to. This is known as quantitative easing (Q/E).

Correction

On the 10^th of July 2024, we tweeted (on “X”) that “...some sort of correction is looking more and more likely.” Four trading days later on the 16th of July 2024, The S&P500 index reached its highest point (5667.2) and began that correction. So far, the S&P has fallen 8,5%. Consider the chart:

WeBuyCars - Follow-up

WeBuyCars (WBC) was spun out of Transaction Capital (TCP) and separately listed on the JSE on 11^th April 2024 – just over three months ago. Before the listing we published an article on the 8th of April 2024, in which we suggested that the share would be a solid blue-chip

Bell Equipment

We are often asked what prompts us to add a share to the Winning Shares List. The answer is that it is a variety of factors – but usually because the share appears to be very cheap in relation to its fundamentals. In other words, we expect it to be upwardly re-rated as its fundamental value becomes recognised by the institutional fund managers. A

JSE All Time Record High

On Friday last week, the 12th of July 2024, the JSE Overall index closed at 81686 – an all-time record high. Consider the chart:

The chart shows that the Overall

Construction

The entire construction industry was decimated by the 2008 sub-prime crisis, the ANC under Jaco Zuma’s presidency and then finally by the pandemic in 2020. Hundreds of thousands of jobs were lost and massive companies like M&R were reduced to penny stocks on the JSE.

The JSE Construction and Materials Index (JS5011)