The Cypher: It’s Myth Busting Time

Welcome to The Cypher! 

The major indexes nudged closer to correction, cryptocurrencies are in a dip, is this the end?

It's myth busting time this week because the data suggest, no. For the moment, they suggest you should adopt a longer term view. 

Let's start with the resuscitation of a cherished signal that is meaningful again for the first time since COVID.

Idea 1: Labor Market Signals No Recession

The economist Claudia Sahm developed a “rule,” called the Sahm rule, which has predicted every prior recession from 1950 forward … except for the most recent period. She wrote quite early that the COVID period would create artificially low numbers and cause a false positive. It did, but we are past that period.

If the reading rises above 0.5, under normal conditions, you should expect a recession. It looks at unemployment data and the rate of its increase to arrive at this point.

Takeaway: As we are back in a normal period, the unemployment numbers are again informative and the Sahm rule states that we’re in the clear.

Positions to watch: SPY, RSP, QQQ, IBIT

Idea 2: Bitcoin: Sometimes Less Is More

In trading, knowing when to act is as crucial as knowing when to hold back. The 25 Delta Skew (1-week) is a contrarian indicator that can guide these decisions. 

As you can see with the black circles, when the skew drops below -10%, it suggests that options traders are overly pessimistic, often preceding a rise in Bitcoin’s price. 

Currently, this indicator is neutral (blue circle), indicating indecision. 

Takeaway: Sometimes the best move is no move at all. It's worth waiting for a bit more clarity (CPI numbers?) in this space. Not bad, just not good either.

Positions to watch: BTC, MSTR, COIN

Idea 3: Mortgage Payments Aren’t Crushing Homeowners (Generally)

You would think that homeowners would be crushed by rising interest rates. While many are opting out of the market, those in the market are not being crushed. The following shows mortgage payments as a percent of disposable income.

Before the GFC in 2008, this figure reached nearly 9%. Today it stands at 5.82%. It hasn’t been this low since the halcyon days of Bill Clinton’s presidency.

Takeaway: While averaged data doesn’t tell the whole story, real estate is overall not posing a burden to mortgage holders.

Positions to watch: NLY, ARR, REZ, MORT

Final Remarks

We believe knowledge is power, so if you learned something, please share us and help others Think Beyond What’s Next. 

Happy Trading!

The Team:

Sebastian Purcell, PhD,

Julian von Loesch, PhD

Todd Mei, PhD, Elyse Purcell, PhD

David LaRoca, PhD 

PS Discover How We Made ~3x in About 90 Days Using Bubble Trading.

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This piece of content is provided for educational and entertainment purposes only. Robin Technologies and Analytics LLC is the firm that distributes 1.2 Labs products. The firm does not provide individually tailored investment advice and does not take a subscriber’s or anyone’s personal circumstances into consideration when discussing investments; nor is Robin Technologies and Analytics LLC registered as an investment adviser or broker-dealer in any jurisdiction.

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