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Bitcoin: hold, buy more or take profits?

‘If my thesis is correct,’ says Petri Redelinghys from Herenya Capital Advisors, ‘you’re going to want to be a seller…closer to the end of the year. I’m bullish’.

SIMON BROWN: I’m chatting now with Petri Redelinghuys, founder and director at Herenya Capital Advisors. Petri, good morning. I appreciate the early morning time.

A while back– I’m trying to think – it was about six weeks ago we chatted [about] Bitcoin. Back then it was at $32 000 a coin. You were saying absolutely it was a buy. We have now suddenly boomed to $40 000 a coin. Is this a hold, is it a ‘buy more’, is it a ‘take profits’?

PETRI REDELINGHUYS: Good morning. I wouldn’t say it’s a ‘buy more’. I think that the first important rule of short-term trading is to make sure that you manage your risk and manage your exposure. And so, if you did buy at $32 000, right now it’s probably a good idea just to hold on till the end of the year. I think that this thing is playing on a longer-term four-year pattern that is repeating, and it has been doing so for a couple of years. Well, at least for 12 years. If my thesis is correct, then you’re going to want to be a seller in sort of the first or second week of December, or closer to the end of the year. I’m bullish. I think the price will go up quite a bit more from where it is now.

SIMON BROWN: And it’s going to be a volatile ride. I mean, this is not a nice and smooth, skate-across-the-lake (ride). But I take your point. There have been some patterns. Okay. I’ll mark that on my calendar. We will chat to you in the first or second week of December, and see how our Bitcoins are doing.

The Top 40 Index – which has been pretty much trading in a sideways zone since the all-time highs in March – made a new high on Thursday and promptly got dumped back down on Friday. In the update you put out at the weekend you were essentially saying that the correct trade here is to assume it probably goes back into the range and down to sub-60 000.

PETRI REDELINGHUYS: Yes. I think it’s the highest probability setup. What I mean by that is that the highest risk-reward that you can find at the moment on the Alsi [JSE All Share] is to short it because it’s been in that range. And, as you rightly mentioned, it made a new high on Thursday with no fanfare. And then on Friday traded down a little bit, back into inside that range. If you use the upper range boundary as a sort of a stop-loss level, and you short it, then you can get a ratio of something like one-to-five or even one-to-10 perhaps. So that’s a really high probability trade. In other words, you’re risking very little to make very much. That doesn’t necessarily mean that it’s the most probable outcome.

SIMON BROWN: Gotcha. That’s where the easy money is…

PETRI REDELINGHUYS: (That’s where the) risk-reward makes the most sense. If we look at how markets are trading now, yes, markets are mostly up but Tencent is down 2.3%, as you mentioned. So we’ll see how the day goes, and 200 points up as a positive open isn’t necessarily bad. 

There are a couple of things, I guess you could say, working against the Alsi where the rand is quite a bit weaker. That in itself is a blessing and a curse because all the dual-listed companies and all the offshore powerhouses generally benefit from a weaker rand. But that also over the last couple of weeks has been on the back of retailers, banks, and sort of local stocks, and we’ve seen how they’ve become bigger influences over the index in recent times. So I don’t know – yes, that’s the high probability set up. Whether or not it’s the right call I guess we’ll find out in about six hours.

SIMON BROWN: We will find out. And that stop-loss, as you say, I suppose sticking above those Thursday highs with the Thursday close that risk-reward point. You can make a fair chunk for risking only a smaller amount here. 

Petri Redelinghuys, founder-director at Herenya Capital Advisors, I appreciate the early morning.

Listen to Monday’s full MoneywebNOW podcast here.

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Be careful when you do technical analysis on a random walk. Every pattern you see is in your imagination and fully random. There is no skill involved, only luck. And the biggest problem is there is no risk premium to harvest, unlike equity or bonds, so your expected return is, wait for it, losing all your capital, so minus 100% should do it in the end. Good luck and enjoy the journey.

It is said that “technical analysis is to the asset management industry, as what homeopathy is to be medical profession”

What’s one hundred dollars or so to you?

End of comments.

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