Quiet Markets, Active Panda: Market Update and Our Roadmap

After writing frequently when Bitcoin was rising and the US election was causing market uncertainty, it’s been a while since I provided an update. This hiatus was not due to laziness (as you will see in this post where I discuss upcoming developments for WU), but rather because I had nothing new to add to what I had already said. The stock market is climbing slowly and all our metrics are in a good spot, while on Bitcoin, there is nothing that has changed in our view since our last update. And not only has nothing changed since, but also the price of Bitcoin hasn’t changed much either!

In this post, I will give a brief update on both the S&P 500 and Bitcoin. This is unusual, as I typically create separate posts for our different audiences, but since these updates will be concise and I'll also touch on some developments we've been working on at WU, I thought it would be of interest to everyone.

S&P500

Since we re-entered the market, all our metrics have improved and are now hovering in bullish territory. Our risk index has been back at 0 since November 13th, and all the underlying indicators are in a very healthy zone. Our NYSE and Nasdaq Derivative volume indicator is green with a considerable width.

Our Implied Correlation signal, based on an analysis of the correlation between the S&P 500 option volatility and that of its individual components, is also in the green, at a level relatively far from where we expect it to flip red. This means individual stocks are experiencing similar volatility to the index, which represents a healthy market.

Furthermore, our Option model has continually climbed and is now at a very high level despite some downturns since it peaked four days ago. It is still considerably far from its threshold line, where it would flip bearish.

This is actually one of the only red flags for me, as the current level it has reached was always associated with a reversal since the beginning of the new bull market.

However, I am not overly concerned, since the option model has gone significantly higher in past bull markets

and because it is only a simulation of what the price action of the S&P 500 would be if we took only the pressure applied by options on the stock market. The complete picture can be different, and indeed, in some instances, we can see a significant cool-off of this model that doesn’t translate into a major drop, like here in 2019.

This doesn’t mean that it was wrong in those instances, it was associated with some sector pullback but that didn’t translate into horrible price action on the S&P 500 index albeit some minor red candle.

One model that is philosophically similar to the option model, although mathematically very different, is the GEX (and GEX+) by Squeeze Metric. For the curious, they explain their indicator in this white paper, but in summary, a high positive GEX suggests that market makers' hedging activities might suppress volatility, while a high negative GEX indicates that their actions could exacerbate price movements. This index is currently really high by recent standards, which kind of means that these market makers need to buy the dips anytime the market prints a red candle, which stabilizes the market.

This reflects what the option model is telling us: the options world currently applies positive pressure on the stock market, which usually translates into a low volatility, stable market (never forget that a Black Swan can always change this rapidly!). This probably partially explains why the current market doesn’t react much to bad news, like Trump's threats of imposing strong tariffs on Mexico, Canada, and China, or Putin’s talk about nuclear escalation.

As a consequence of this stable and healthy market, our market breadth-related indicator is currently at a very low level, which is somewhat consistent with our Implied Correlation model we mentioned above.

The volatility has also come down a long way since the US election. As a consequence, the VIX ribbon is not only in the right order but now also very wide. If this trend continues, this could soon trigger our WU advanced Volatility Trend Indicator, which would signal that we are back in a low volatility environment like we were since November 2022.

Besides the fact that the option model is very high, the only other metric that concerns me a bit is the SKEW. Yesterday, this CBOE important metric came in at 170.65, a value incredibly close to ATH that we have only seen in June 2021, February, and September 2024. Although a high SKEW reading doesn’t instantly translate into a correction, this certainly indicates that we are closer to a top than we are from a bottom. Historically, very high SKEW readings have always been followed within a few months by a correction. For example, on August 14, 2018, the SKEW made a new ATH of 159. This didn’t stop the market from continuing its ascent for another month and a half, before finally starting the Fall 2018 correction that lasted almost three months. It also took a bit more than two months after the June 28, 2021, new SKEW ATH before the September-October 2021 correction started. So, if we want to be positive, the history of SKEW tells us that seeing it at ATH means that we shouldn’t see a correction right away. But this also suggests that one may be only a month or two ahead of us and that prudence is required.

What will WU do regarding the stock market?

At the moment, we are not overly worried and believe that the market should continue to perform well for a while. However, we could be wrong, which is why we will continue to monitor our indicators and take action if our Risk Index rises or if our hedge triggers. Going forward, if our Risk Index reaches a value of 4 (currently at 0), we will sell our leveraged positions (UPRO and TQQQ) and will completely exit the market if our hedge signal is activated (Sell SPY).

Bitcoin

Exactly nothing has changed in our view since our recent article on Bitcoin. All our top indicators signal that we are not yet close to a cyclical top, although we are now entering the euphoria phase of a Bitcoin cycle.

As a consequence, our strategy has recently flipped to our Blue mode when our Kwiatkowski indicator went over 25. It is in this phase that Bitcoin is the most explosive and volatile, but this implies that the volatility can occur in both directions, with swift corrections that can go up to -30%. These usually recover very quickly and therefore are not very harmful for someone not on leverage. In this mode, our strategy will monitor very closely all our top indicators to trigger an exit point when several of them reach their maximum reading range or if they get sufficiently close and then Bitcoin starts to fall.

Like I said above, I don’t expect this top to come right away. I think the next move should break considerably past the 100K$ mark. When it does, we will assess our top indicators to understand more about where we are in this cycle.

Now, this opens the question: when will we resume this move and break this psychological barrier of 100K$? It is actually very hard to predict when Bitcoin is going to move, but since we had relative great success at calling Bitcoin's moves in October 2023 and November 2024, I will try to guess again. Here is my opinion:

At this moment, we see a lot of strength in Bitcoin. When we went down to 91K$, the dip was bought incredibly quickly to the point that I hadn’t had the time to see the effect in my account before it bounced back to 97K$. Recent bad news, like the US government transferring part of the Bitcoin they seized from Silk Road to Coinbase probably for liquidation, barely affected the price of Bitcoin. As a comparison, similar news this summer created a strong 10K+$ downward move. Such strength favors an imminent breakout.

I don’t often use technical analysis, but I think when Bitcoin is at levels under the spotlight, it becomes only a matter of technical fight where bulls exhaust sellers in an oscillation pattern where traders also surf that wave. This is what we are currently seeing, and as a consequence, Bitcoin is forming a pennant pattern that is near its end.

If it can slice through the 98K$-99K$ resistance with enough energy, I am pretty sure Bitcoin will explode past 100K$.

The other possibility is that the resistance wall is too strong and we need to coil back another time to accumulate more energy. In that scenario, we could see Bitcoin breaking the pennant to the downside for a revisit of the low 90K$ before exploding. I favor scenario no.1, but in any case, we should know the next direction probably before next Sunday.

The pennant pattern suggests that the next move could go to 137K$. This is where I think I prefer to ditch technical analysis in favor of our more usual on-chain metrics. Our MLDP Z-Score indicator has considerably cooled down since we first reached 99K$ 12 days ago. It is currently down to a value of 2 at 96K$. If the breakout happens now, it would probably reach a value of 3 standard deviation at around 107K$ and could reach an extreme reading of 4, like we had in January 2021, if the move continues up to around 120K$. These are estimates, and this will need to be reassessed as Bitcoin breaks out, but still, this represents the upper range of where I expect Bitcoin to go before a real pullback happens, if it is to breakout very soon.

In any case, when Bitcoin resumes its move, rest assured we are going to monitor our different metrics and update you with a more detailed game plan.

WealthUmbrella Upcoming Changes

Although the recent relative calm of the stock market, combined with 12 days of consolidation in Bitcoin, gave us a break from writing, rest assured we haven’t taken this pause as a holiday. This break allowed us to sharply focus on some of our ongoing projects. Since we managed to significantly advance these projects, I thought it would be appropriate to provide an update about what is soon coming to WealthUmbrella.

S&P 500 Data Dashboard

We have been working for a while now on creating a data dashboard to be available on our website as an alternative to TradingView. We planned to release it in November, but this project turned out to be a bit more complex, so we are now slightly behind schedule. We had three motives for creating this dashboard. The first one was to provide a high-level dashboard where you can see a real-time interpretation of some of our key metrics relevant to the current market. Approximately 40% of WU users do not use TradingView, but we are also aware that although some of you are real data junkies, others feel lost in front of all these graphs. Therefore, this new interface will provide a real-time interpretation of what the current readings of the relevant metrics mean in terms of bullishness or bearishness, in a similar fashion to how I do when I write an update and go over all the metrics. This is not meant to replace my blog posts but rather to give you a way to give yourself a micro-update as you need it. Zackary just completed it yesterday. We will meet later today to work on the assessment part, but here is a preview (the interpretation gauges do not reflect the current market; they are just in a random state).

The other two motivations for creating our own dashboard were related to our desire to move away from TradingView. Although I appreciate TradingView, there are several limitations to the platform as a data hub. One issue is that several datasets are only available at the end of the day, whereas it would be useful to have updates during the day. These daily data tend to be revised often, thus causing repainting of our indicators. Additionally, the availability of some data is subject to change based on their commercial agreements, making us vulnerable to losing part of our strategy. This happened with the Dark Pool data last year, but it has also occurred in other instances where I woke up to find some of our indicators had stopped working and I had to find a replacement dataset. It actually happened without you noticing it with our NYSE and Nasdaq derivative volume; I recently had to find an alternative way to compute all the options volume per exchange.

My last motivation for moving away from TradingView was to provide you with a place where you could simultaneously see all our metrics without having to load them one after the other on several TradingView screens. Therefore, we created a second page, where you are able to see all our indicators at once.

This part is now complete. I have been using it as we were building it for at least a month now, and it has proven to be very useful for me. Not only can you see all our indicators simultaneously, but you can also click on each of them to get a full-page visualization of the indicator, just as I did for taking several images for this post.

One of the reasons it took us a bit more time to build this interface was the complexity of the algorithms behind it, which allow us to efficiently consume data and compute all that stuff in a way that will scale. To do this, we decided to build our own WealthUmbrella API, as it was the best approach, and it also corresponds to something some of you have expressed interest in: consuming WU data in your own dataframework through an API.

The dashboard is now complete, and we plan to release it sometime next week. We will write a more thorough post then to explain all the features. The release of our API will come later, probably in January, as we will need to write an API guide to accompany it and still run some tests before then.

Advanced Market Data

Another reason we developed a data framework that would allow us to give you access to data outside of TradingView was in anticipation of a new offering that we will probably call WU Advanced Market Data. I mentioned it when I conducted a survey last May. This new offer will provide access to more market indicators as well as some tools related to individual stocks. For example, our Retail Momentum Screener flags with 93% accuracy stocks that see a surge of retail interest that should lead to an epic run. But other tools like an improved risk index provide more granularity for managing risk, a Buy the Dip indicator that tries to flag market bottoms in a correction, a Dark Pool indicator on individual stocks, automated analysis of individual stocks to highlight statistics and potential useful strategies, and others.

Why create this as a separate offer instead of simply enhancing the WU S&P 500 package? One reason is related to how varied the WU community is; while some of you are data junkies, others feel lost in all our data. Therefore, providing more data for some makes our product worse. Another reason is that institutional-grade data are expensive. For example, I mentioned Squeeze Metric above, which provides an API that feeds four indicators (in addition to general stock data), including GEX, which is similar to our option model, and DIX, which is like our Dark Pool indicator. Their API subscription costs $720 per month. Although this may seem expensive compared to a WU subscription, it is actually very reasonable in the institutional world. Most of our data subscriptions are in the $1,000-$5,000 per month range, sometimes with limitations as low as 50 API calls per day for that price. I always read that a Bloomberg terminal is only reserved for the rich ($25k per year), but it is actually pretty reasonable compared to some subscriptions we have. The worst quote I received was for a Nasdaq Data Link Package that was $150k flat yearly fee plus $3k per month per computer. Also, for some subscriptions, the bill inflates as a function of the number of API calls we make, which also partially inflates with the number of users. So there is an incredible price tag for making these indicators available to retail users, therefore this new offer is a way to share the data bill. I really don’t expect to break even on this subscription tier for at least two years, but on the other end, we will benefit from it through our investment fund. The trades I already took with our Retail Momentum Screener have probably already paid for these two years.

Although Zackary and I are coding furiously to make this available as soon as possible, the backtesting for some of these new indicators is monstrous. Indeed, as soon as you touch individual stocks, you need to backtest not only on different periods but now on almost every stock. My wish was to be ready for Christmas, but now I think a launch in February becomes the most realistic scenario.

Bitcoin

Since we coded all the framework for making a Data Dashboard for our S&P 500 subscription, we thought it would be easy to do the same for Bitcoin. The issue we ran into was finding a data subscription at an acceptable cost that would allow us to redistribute data. Although the institutional plan from Glassnode for API access is affordable (in the range of $1k per month), such a subscription does not allow us to feed data back to our users. The quote we got was incredibly expensive and would actually surpass the revenue we get from Bitcoin subscriptions. The solution to this is to run our own Bitcoin Node on the blockchain and compute directly our metrics. This is what we are going to do, but it will require serious work that should come later next year. So, in the meantime, we will remain on TradingView only.

But this doesn't mean we don’t have new stuff for Bitcoin too. I already talked in this article about how we made a new top indicator to replace one that was kind of broken. This one is called WU BTC Exchanges Money Flow Top indicator and is the top counterpart of our WU BTC Exchanges Money Flow Bottom indicator that helped us nail the Bottom in November 2022. You should get access to it soon, at least in time for where it will be useful: the next cyclical top.

Besides this indicator, I wanted to also make a top indicator purely based on price action instead of on-chain metrics like the other one. My starting point was the Pi Cycle Top indicator developed by Philipp Swift in 2019. The issue with that indicator is that its amplitude is considerably diminishing with each cycle, like most other top indicators out there. I wanted to craft a correction lens to this one, without success, but the work on that correction lens led me to another indicator that is based on Hooke’s law that turned out being a very solid cyclical bottom indicator and probably a good top indicator.

I am not done, but we should release it at the same time as our WU BTC Exchanges Money Flow Top indicator along with some more in-depth explanations of what it is tracking and how it works.

Conclusion

The relative calmness in the market gave us more time to advance some of our projects. The Data Dashboard is now nearly done and should be released next week just in time for Christmas. We will keep TradingView access, but this will provide another way to consult our metrics and interpret them. We have other projects that will benefit stock market investors as well as Bitcoin users, but these will come more in Q1 2025. In the meantime, be certain that we always continue to monitor markets and will update you in time as one or both markets evolve into something less calm. Until then, I hope you make it to the end of the year being considerably wealthier than you were in 2023. On our side at that moment, the WUF (WU Fund) is at a solid ATH!