Bitcoin $18,000... and A Big Bullish Signal for Stocks
Bitcoin $18,000... What to make of new crypto highs... A short-term trader's take... A big bullish signal for stocks... We've seen this story before... More signs of a 'Melt Up'...
Bitcoin's price keeps moving higher...
Less than two weeks ago, we mentioned the most popular cryptocurrency's recent eye-popping rip... We noted that bitcoin's price already had risen more than 30% since mid-October and had a flurry of positive headlines going for it.
Well, in the 12 days since that November 11 Digest, bitcoin's price has surged even higher. It's up another 17% and is now near highs last seen during the late 2017 "crypto bubble"...
The catalyst has been the recent headlines and the macro framework of the global economy today. As Stansberry NewsWire analyst Nick Koziol wrote last week...
We've talked about these tailwinds in recent weeks. A flood of government stimulus throughout the pandemic has sparked fears of weaker currencies and rising inflation. As a result, inflation hedges like gold and bitcoin rose because they are good stores of value in times when inflation is high.
Another tailwind is increased adoption. More and more investment institutions are warming to the cryptocurrency. It's not just investors. Financial companies are also realizing the opportunity with bitcoin...
Square (SQ) and PayPal (PYPL), two of the largest payments platforms in the world, have launched bitcoin buying and selling on their platforms. SQ did so in 2017 and PYPL did so last month.
Digital-payments company PayPal's (PYPL) incorporation of bitcoin, as well as three other cryptocurrencies (Ethereum, Bitcoin Cash, and Litecoin), into its platform has drawn the biggest reaction... It opens the door to bitcoin transactions for more than 340 million users.
Starting on November 12, every PayPal user in the U.S. could buy and sell these cryptos on the platform. And as Crypto Capital editor Eric Wade wrote last week in his subscribers' newest monthly issue...
Crypto markets have trended up sharply since the announcement. The BGCI [Bloomberg Galaxy Crypto Index], which tracks a basket of the largest cryptos (all of which PayPal now supports), is up 138% year to date and 181% from the March bottom.
As far as short-term moves, this is one of the more impressive we've seen in recent memory...
It might be an overreaction, but it's happening as we speak.
Demand for bitcoin is rising... And it has been acting as a "chaos hedge" much like gold. That makes sense, given bitcoin was born out of the financial crisis of 2008 and 2009...
Bitcoin's origin story is linked to chaos, distrust of government, and the desire for we the people to have more control over our money and wealth. These are trends that aren't going away anytime soon, if ever...
In fact, with everything that has happened just over the past month, our founder Porter Stansberry has recorded a special message highlighting this fact and why learning about and investing in cryptocurrencies is well worth your time right now.
And we hope you'll come back tomorrow evening for more on cryptos from Eric in a special Digest guest essay... He'll share his updated long-term outlook and what the PayPal news means for crypto.
Like anything, though, it'd be foolish to expect a one-way trip higher for bitcoin...
Bitcoin is still a relatively "young" asset... In human years, it's not even a bratty teenager yet.
Throughout its history, its price has been volatile and prone to steep pullbacks after big, rapid rises like this – though over the long run, its market cap just keeps getting larger and larger. And as we wrote on November 11, the trend for bitcoin has been up since March...
And if you zoom out further, it has been quietly rising off its most recent bottom in December 2018.
If you're in bitcoin for the long term and have just a small portion of your overall portfolio allocated to cryptos, it makes sense to keep holding on for the ride.
As we said, the full story is just getting started... The appetite for bitcoin is approaching our massive desire for a hearty Thanksgiving meal this week... And there is an entire cryptocurrency world – including and beyond bitcoin – worth educating yourself about.
It's not too late to learn more today when you consider the long-run potential.
In the short term, however...
If you're interested in trimming your bitcoin position, now is not a bad time to consider taking profits.
This fact might get lost in the stream of crypto headlines and bullish sentiment, but bitcoin is a tradeable asset like anything else. Ten Stock Trader editor Greg Diamond put it well this morning in his Weekly Market Outlook...
I don't get as excited (Bitcoin is going to $1,000,000!) or as apocalyptic (Bitcoin is a Ponzi scheme that's going to zero!) as some people when it comes to bitcoin and cryptocurrencies...
It's just another market to trade.
With bitcoin hitting highs not seen since late 2017, when the price briefly touched $20,000, we were curious for Greg's take on bitcoin today... So we asked.
And Greg took the time to send a private note for us to share with Digest readers outlining his outlook for bitcoin and his strategy. Even though Greg spends his time researching stocks, his brand of technical analysis applies to cryptos just as much...
I don't actively trade bitcoin/cryptos, but I do have exposure. I utilize a simple strategy that has worked well for a while now... When cryptos as a basket are up 10% or more, I sell some. And when they are down 10% or more, I buy some.
For the most part, I just watch it and add some/sell some on the volatile days. I have allocated a small percentage of assets to this market. So if cryptos skyrocket, I'll make some money... But if they all go to zero, I won't lose my house.
It's an emotional market and extremely volatile, so I only trade when that volatility is in my favor. Here's the long-term weekly chart...
The blue line indicates bitcoin's 200-day weekly moving average, while the numbers on the bottom part of the chart show its relative strength index ("RSI") – a technical measure of momentum. As Greg continued in his note...
In the short term, bitcoin is overbought on the RSI and approaching the all-time high, which should result in some volatility. But with no shortage of fiscal and monetary policy insanity, I wouldn't be the one to start shorting it here.
When stocks crash again sometime in the next few years (which they will), I'll jump back into bitcoin at the 200-WMA again. So I'm playing this for the long, long term.
Please, be cautious if you're trading bitcoin... It is an extremely volatile asset, and we don't recommend putting more than a small piece of your portfolio into bitcoin or any cryptos.
Even our short-term traders like Greg and DailyWealth Trader editors Ben Morris and Drew McConnell are quick to point this out...
For instance, Ben and Drew recommended buying positions of bitcoin on May 5 and June 2 that are up 108% and 95%, respectively.
Yet they caution allocating no more than 5% of your investment assets to the cryptocurrency space (if you're comfortable with a lot of volatility)... and possibly far less.
On a related point, about that inevitable crash in stocks that Greg casually mentioned...
We wrote last week about the trillions' worth of "Melt Up" fuel that has still yet to be burned – in the form of government stimulus and cash that still hasn't worked its way into the market yet... And we discussed how this was more bullish for stocks in the long term.
Over the weekend, we came across some more supporting evidence via our friend and AllStarCharts.com founder J.C. Parets, who is a technical analyst like Greg.
J.C. shared this chart from Oppenheimer's chief market technician Ari Wald, which showed that 80% of stocks on the New York Stock Exchange are trading above their 200-day moving averages right now – the highest percentage since 2013.
Now, you may hear this stat and think, "Oh, boy, stocks are peaking right now"... But over the last decade or so, when "market breadth" – in short, the number of stocks going up versus down – has been at high levels like it is today, it has signaled much more upside in the years ahead before an ultimate peak in the stock market. Take a look at the chart below, including J.C.'s thoughts on it...
The point of this chart, in my opinion, is to reiterate that it's mathematically impossible for the stock market to go down if all the stocks in the market are going up!
Ari points to the fact that breadth peaks well before the market does. You can see prior breadth peaks in the chart and how long afterwards it took for the market to put in its final top.
This is an indicator that our colleague and True Wealth editor Dr. Steve Sjuggerud has long used in his research and trading services...
It's a great gauge of market health...
Longtime readers are familiar with Steve's use of the "advance/decline" line. This is a way of measuring the "market breadth" described above...
And Steve and his research team noted it prominently back in July, when they told subscribers that "the Melt Up was back"... even as we were (and still are) in a pandemic and the economy looked questionable (and still does). As Steve wrote...
A healthy market is one with lots of stocks moving higher. We want to see all sectors and company sizes booming... not just the biggest and most important companies in the major indexes.
That's exactly what the advance/decline line does. While it might sound fancy, it's an extremely simple indicator. Each day, you take the number of stocks that went up, then subtract the number of stocks that went down that day. Simple. You then add that number to the previous day's value for a running total.
That makes the advance/decline line a cumulative history of stocks going up or down. And it means that in a healthy market, this line will hit new highs alongside – or even before – the major indexes...
By that measure, this bear market indicator is giving us the green light today [July]. Take a look...
More stocks going up than not means a "rally is broad and healthy," according to Steve. "It tells us that a bust isn't likely."
Today, it's the same story.
And this trend has played out many times before...
In July, Steve pointed out that "market breadth" peaked years before stocks did in the dot-com bust...
During the craziest part of the dot-com boom, very few stocks were driving the rally higher.
The advance/decline line peaked in early 1998. And by the stock market peak in 2000, it had fallen to multiyear lows. Again, most stocks were falling... but the biggest and most important stocks were pushing the index higher.
And it was more of the same leading up to the Great Recession crash. Take a look...
This indicator peaked in mid-2007. And when the market made its final peak a few months later in October, the advance/decline didn't follow suit.
That was a subtle but powerful tell about the health of the stock market. And we all know what happened next... Stocks crashed more than 50%.
This is an incredibly powerful bear market indicator with an impressive track record.
That's why back in July, Steve said, "Despite how scary it might seem out there today... it's giving this new bull market a green light."
In fairness, this indicator didn't warn investors of March's crash, but as Steve wrote in July, "That was a true black swan event."
He explained that the COVID-19 crash wasn't caused by a crack in the underlying economy or the health of the market like the dot-com bubble or the housing bust. More from Steve...
I know what you're thinking, though... "What if we see a repeat of the 'black swan' crash of February and March?"
It's true – it could happen. But the first crash happened because the virus took the market by surprise. Now, the market is looking forward. It has digested the fears.
All kinds of stocks are moving higher. The rally is broad and healthy. And that means it can continue higher.
Three months later, the health of the stock market – based on this indicator – hasn't been better over the past seven years.
It may feel counterintuitive given folks around the country are thinking about whether it's safe to visit family for Thanksgiving... But that's why we're contrarian investors.
Way more stocks – four times as many, in fact – have been going up than down over the past several months. The Melt Up is indeed back... And if you're a believer in Steve's thesis, it has room to run higher.
The Black Friday Test
True Wealth analyst Vic Lederman recently joined our colleague Jessica Stone to talk about how retailers are navigating the critical holiday shopping season. They also looked at which companies are ready for the Black Friday test...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 11/20/20): AbbVie (ABBV), Reality Shares Nasdaq NexGen Economy Fund (BLCN), Morgan Stanley China A Share Fund (CAF), Futu Holdings (FUTU), Renaissance IPO Fund (IPO), Jushi (JUSHF), KraneShares CICC China Leaders 100 Index Fund (KFYP), Cloudflare (NET), Southern Copper (SCCO), T-Mobile (TMUS), The Trade Desk (TTD), and Vestas Wind Systems (VWDRY).
In today's mailbag, feedback on Dan Ferris' Friday Digest, which in part noted "the Economist indicator"... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Hi Dan – I thought you'd comment on the Economist article when you read it. I don't think they would disagree with you. Basically, what the article says is we need a new way to identify value, and that's exactly what you're doing!
"Thanks for the great work!" – Paid-up subscriber Hugh M.
All the best,
Corey McLaughlin
Baltimore, Maryland
November 23, 2020