Markets: China's Impact on Crypto

by Francesco Placci

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Apparently, in these first days of autumn, leaves are not the only thing that’s falling.

 

In fact, American stock indexes and cryptocurrencies are falling too.

With Evergrande that risks defaulting on the one hand, and the Chinese government's position against cryptocurrency mining on the other, the past week was decidedly eventful. In this short video, we'll tell you everything you need to know about how the markets and volatility reacted to these events.

Transcription

Hi guys and welcome to our weekly overview of the markets.

I am one of the coaches of Unger Academy.

Okay, so this week a lot of things have happened on the markets, especially on stock indexes. In fact, on Monday, Mini S&P, the US stock indexes, and the European stock markets went down quite a bit due to the situation of Evergrande, the Chinese super real estate group that seems to be close to default. This has obviously fueled fears of a systematic crisis that made stock indexes all over the world enter a bearish phase. However, as you can see, these markets have already recovered and they are now more or less on the same levels as last Monday.

Of course, this led to an increase in volatility, as we can clearly see from the short-term standard deviation. Nevertheless, long-term volatility is still fairly normal, with values that stay below or around the 50th percentile.

Bonds are also negative, as you can see. They are still within the trading range they have been in over the last few months. However, they are dangerously in the very lower part of this range.

Energy markets, on the other hand, moved in a mixed way. The one that probably performed best is Crude Oil, which is now getting closer to its historical high.

Metals continue to be weak. In fact, as you can see, they've been producing negative returns for three months now. Silver, in particular, went through a very strong downtrend.

Meats are also going through a weak phase. They are showing a lack of directionality and mixed returns. In particular, over the past year and the last three months, the returns were particularly negative.

Soft commodities produced mixed results and Cereals didn’t move in an interesting way at all. So no noteworthy ideas here.

What was certainly more interesting is the cryptocurrency industry. This is the chart of Bitcoin, which as you can see is now getting close to an important support level. This is due to the violent fall that occurred on Friday, which was triggered by the release, by the Chinese government, of a detailed document on the prohibition of mining. 

And Bitcoin wasn't the only market that paid for this document. Actually, the whole cryptocurrency market experienced a significant fall. On Friday, for example, some smaller cryptocurrencies lost over 30%.

Let's now take a look at implied volatility. Here's the term structure of the Volatility Indexes on the SPX. Last week we have seen that volatility was rising. On Monday, a further rise occurred, but now, as you can see, it's going down.

So the situation seems to be absolutely under control at the moment. VIX is within the range of the last 3-4 months and the term structure doesn't currently seem to be a cause of concern.

Now let's move on to rollovers. As you can see, there are no rollovers planned for next week. I just remind you that the last ones we did were on energy futures, VIX, and Bitcoin.

And guys that's it for this week.

If you want to understand more about what we do at Unger Academy and how we develop our trading systems following the method of the only 4-time world trading champion Andrea Unger, I invite you to please go and check out our webinar. 

Bye bye to everyone! See you next time!

 

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Francesco Placci

Hi, I'm Francesco Placci, a professional trader since 2005 thanks to the systematic approach to the markets.

My skills range from trading on index futures to bonds, from stocks to commodities, with a particular focus on volatility and options, which I consider to be among the most versatile and fascinating instruments available to traders.

After an experience with leading Italian credit institutions where I learned the basics of institutional finance, I became a successful independent trader, with great personal satisfaction.

Founder of Algoritmica.pro, in 2019 I joined Unger Academy as head of Research and Development.