Are Blockchain Stocks A Buy after a 75% Decline? It seems crazy to even ask such a question, however we want to look into the answer from an objective standpoint to provide our readers with an idea of what’s happening in this volatile sector that has been getting a lot of attention from the media for different reasons.
Blockchain stocks in particular, are very volatile and difficult to predict. Their returns could be spectacular but they come with an extremely high risk. Therefore, we always recommend to select the best candidates, to do the necessary research and keep positions small and capital allocation minimal to mitigate risk.
For the research part, our Blockchain research service uses a proprietary scoring method that covers many aspects of the company starting with the leadership team, the Product and market fit, financials,.. to ensure we have he best assessment of the future potential.
When it comes to assessing Blockchain stocks, they are a unique breed. They are correlated with Cryptocurrencies of course, but also with the stock market’s performance and some indices in particular. Therefore, the answer to the question above is a 2 folds:
Based on the stock market’s performance and on the Cryptocurrency Market’s performance, are Blockchain stocks a Buy?
Based on the stock market’s indicators, investors need to see a confirmation that the correction is over, which we are not necessarily seeing right now. Most indices and lead indicators are close to a major support or resistance area, which usually means it is time to be cautious and wait for the perfect set up to be clear. We have just published the following article about what’s next for Stock markets in 2018.
The Cryptocurrency market is in a similar set up where major Cryptocurrencies are approaching mega support levels as well. We believe there might be an exhaustion of the selling very soon but investors will need to exercise caution and see confirmations first prior to making decisions. Otherwise, they need to make sure they either use proper risk management (stop losses) or have longer timeframes.
The chart below, annotated by InvestingHaven and courtesy of goldchartsrus, is a log chart of the top 8 Cryptocurrecies index. Because of the volatile nature of Cryptocurrencies in addition to the steep and fast price movement, log charts provide a clearer image of the trend. What we observe is that the index is about to reach an important support area and we believe it will hold to at least send the market into a stabilization period.
Next is the log chart for the top 50 Crypto Index showing a pattern similar to the Top 8 Index. The difference is the Top 50 Index recently touched the support level and it held, which is positive for the sector. A second back test is in the work and it is important that this support holds.
So to answer the question from our title, Blockchain stocks are at very attractive levels right now, with most of them trading around their breakout levels. However, if there is more downside to the correction in the stock market or the Cryptocurrency market, it might take a while for the sector to recover. These could be interesting levels to initiate first partial positions with stop losses right under the crucial support levels. For those holding, it is best to wait and add on strength.
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