ECB takes action

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ECB takes action
By Luca Padovan, 6/21/2022


The main news of the octave just ended concerns the European Central Bank's decision in a state of emergency to implement solutions and strategies to reduce market pressure on government bonds of peripheral countries in the Union, such as Italy.

In terms of yield rates, I had seen in just a few sessions the Italian 10-year bond skyrocket above 4 percent, in an area that had not been touched in almost 10 years. Obviously to stem the hemorrhage, the Central Bank intervened on an extraordinary basis with an emergency meeting that assured the market that the monetary policy put in place will take into account new instruments to protect the debts of peripheral countries.

The news was taken very well by the markets, which in recent sessions have seen signs of reversal both in equities and, above all, in all bonds at various maturities, whose prices have begun to react upward while yields have begun to deflate.

Tensions eased slightly after the fiery weekend for cryptos, with Bitcoin plunging below 20,000 touching 17,500 and Ether breaking $1,000 returning to triple digits as we have not seen since 2020.

Fortunately for the bullish in the sector, like yours truly, as early as yesterday morning the price of BTC and ETH immediately bounced back above the guard levels at 20,000 and 1,000 respectively .

 

Have we bottomed out? No one knows and cannot know. Certainly it is true that in general a in this situation, with the right diversification, most asset classes are being bought at really good prices, prices not seen in years.
Unless a person thinks that we are facing the end of capitalism and the market as we know it, I think buying in these situations is a big opportunity, which I personally am doing.

 

Clearly, liquidity is a necessary condition, and that is why, even in a bullish phase, one should always keep a fair amount of liquidity aside for needs or for future buying opportunities.

 

Right now, from a commodities perspective, we are starting to see oil struggling to hold the highs at $120 and gold almost close to $1,800 per ounce. I would leave oil alone and buy gold at these prices.

 

In the currency market, the dollar holds sway but at these prices it no longer makes sense to sell euros for dollars, but be ready for the reverse when the rate falls below 1.045-1.04.

 

Equities have been suffering since the beginning of the year and have been lateralizing in the last few hours, aided by yesterday's US close.

My trade is bullish on Nasdaq, after -30% since the beginning of the year I see discounted in prices all negative scenarios while positive ones could make the quotes recover, at least up to 13,500, if something goes less worse than expected.

 

Watch out for Bonds, we are not necessarily at the bottom, although the 10y BTP above 4 percent yield I think is an excellent entry window into this asset. Below that threshold the risk is not justified.

 

I will close by telling an anecdote.

Last Friday I was one of the speakers at the IT Forum in Rimini and when I presented the list of my executions since the beginning of the year on Cryptos, which resulted in a 189% return without leverage, the first question was how was this possible in a bear market, bearing in mind that 100% of my trades were on the upside.

I answered that basically I always divide the trades I make between trading and investing.

As much as I am convinced that Bitcoin, for example, can reach $1 million in 10 years from an investment perspective, the same Bitcoin bought after a sharp drop to 30k and revised to 36k two days later due to a swing effect brings me a 20% dry profit in a few hours of risk. I am not saying that it happens every time of course, but that despite the fact that my basic idea is totally bullish I am able to assess a risk/reward/time ratio when analyzed in a different part of my portfolio, that of speculation.

 

See you in two weeks and happy trading everyone!