What the heck are Bollinger Bands?

Bollinger Bands were developed by John Bollinger. They are envelopes (or could be thought of as sandwiches with the moving average of price as the filling) plotted at a standard deviation (which can be adjusted) above and below a simple moving average of the price. As the distance apart of the bands is based on standard deviation, the bands naturally adjust to swings in the underlying price being measured.

The width of the bands and underlying trend can be indicative of pending shifts in price. For example when the bands are narrow and remain narrow for a period of time which is indicative of a period of low volatility it can portend a more significant future price movement up or down which in turn would require other technical indicators to evaluate alongside it. The timeframe over which Bollinger Bands are observed or utilized is likewise an important factor to take into account and can also weaken or strengthen their validity or usefulness. If you are observing these over hourly, daily, weekly or monthly time frames they will yield different value.

Some bad news for Democrats in Virginia prompted some much needed urgency and positive action on the legislative front and the resulting upgrading of America's deteriorating infrastructure. The "Build Back Better" or $1.2 Trillion Infrastructure Bill passed through Congress yesterday and is now waiting to be signed into law by the President.

$1.2 Trillion is a number that is hard for most mortals to comprehend. It is a gargantuan ammount of money, the largest sum ever dedicated to the revamping of America's infrastructure.

So, what are the implications of this massive investment program for american companies. Who stands to benefit the most?

We have often written about the "asset inflation" bubble caused by a trifecta of near zero interest rates, record levels of money printing not seen in american history and the federal reserve acting as a backstop for everything! Well maybe not everything, but again more than ever before. The "relative value" of the dollar continues to fall against this backdrop. a trend that has continued over a 50+ year period. The purchasing power of the dollar has fallen by 92% over the last 50 years. Let that sink in for a moment. The only saving grace is that other westernized countries are not faring much better yet none have the size of national debt of the USA. It helps to be the worlds reserve currency!

In the midst of a historic "asset bubble" of "everything" where many fund managers are cautious, there are well respected fund managers talking about a continuation of the bull market into 2038, one that is fueled by the "millennial" generation. The arguments are compelling and we wanted to share some of them in this article.

Cathie Wood, the architect of Ark’s comprehensive range of ETF's sais: “So this is the echo of the baby boom,” in reference to the millennial investors being the new drivers of an extended bull market into 2038 to mirror the baby boomers who fueled a 20-year bull market in stocks during the 1980's and 1990's.

We have discussed Oscillators as indicators that will depict oversold and overbought conditions over different time periods. Oscillators will vary in what they depict depending on the inputs. In general they will map the trend of a given stocks price movement but depending on the inputs you can amplify the trend or conversely you can soften the overall trend. For short term investors amplifying the trend may provide more accurate short term signals for either entry or exit points and likewise for long term investors reducing the sensitivity of the signal will more accurately depict the long term momentum in price cycles and growth. Longer term investment horizons allow for more underlying data and therefore technical analysis will provide more reliable information for interpretation and analysis than short term investment horizons.

If investors believe in the long term growth prospects of a stock or fund (basket of companies) then buying at those times when price oscillates to the lower bands of the stochastic oscillators numeric ledger, usually 0-20 (which signals oversold conditions) can be on approach to steadily acumulate a position over time. Investors looking to rebalance their portfolios on a stock or fund that has outperformed the market for years may look at a long term oscillator top range, usually above 80 (which signals overbought conditions) as one of many different signals to assess when to exit a portion of their position and re-balance their portfolio. The chart on the right shows Amazon's monthly stock price movements and points to 2 moments in time when the stochastic oscillator was at a low. If you believed in the long term growth prospects of Amazon, both these moments in time would have provided good entry points to accumulate stock.

Technical analysis used in conjunction with macro analysis can provide a more balanced and objective perspective for purposes of portfolio management, entry and exits, investment and rebalancing decisions whether that is for an individual investor or asset manager over different time periods. Technical analysis is a tool which requires context and experience to assess and use. That context is based on the investment goals of an investor or fund manager. 

We have talked about the blockchain in prior articles. Many people associate the "blockchain" with "Bitcoin" but the blockchain is far more than Bitcoin. Bitcoin is a counter financial cyclical innovation that arose directly after and as a result of the 2007/8 financial crash and depression. We refer to it here as counter-cyclical because it has a deflationary monetary supply built into the code. It is not subject to human, governmental or political motivations that can inflate the money supply to unprecedented levels of indebtedness - in a monetary experiment - that devalues the worth of the currency, causes inevitable inflation and arguably impacts those who are the least well off, the most, over the mid to long term. Bitcoin's supply is fixed and known. It is finite. It is often referred to as a "store of value" - the equivalent of digital gold, except more easily stored on a comparative basis, more liquid and transportable, not to mention an increasingly globally accepted currency and asset class in the westernized world.

Bitcoin is however just the tip of the iceberg of changes and innovations spurred by the blockchain that will sweep the world and impact every industry on the planet. The biggest disruption in finance in the last two hundred years is unfolding now. It will be commonplace soon to be able to send monies for free or fractions of a cent 24/7 to anyone in the world. Businesses will be able to accept payments for cents vs paying 2-4% in fees for every sale. Individuals can access fair market interest rates in exchange for depositing monies with crypto banks. You can do that right now. Yes, these do carry more risk but with over $250 billion dollars accessing the decentralized financial markets today these risks will become more manageable. Insurance products are already being created to manage this risk. This industry is still in its early evolutionary phase and as the products and technology mature so will the ease of use, accessibility and safety.

Another industry that is being reinvented on the blockchain is the gaming industry. In one year, Axie Infinity, a blockchain gaming company is generating more revenue than some of the largest gaming companies in the world. More, many more such ventures are coming. The economics or tokenomics of these ventures allows users to also interact financially whether it is to secure the network, purchase games, buy/sell various items within the gaming ecosystems, compete and generate income.