While I’m in Florida preparing for the MoneyShow on Friday and my bike race on Saturday, ValueTrend’s Technical Analyst Associate Aleks Bozic put together a blog. Aleks has an interesting observation on bitcoin. Take it away, Aleks!
Alek’s bit on Bitcoin
Back in 2017, Bitcoin was one of the most Googled words. Now it seems no one is talking about it.
Bitcoin vs. US Dollars topped out in late 2017 at $16,732.42. By late 2018 it crashed and burned, reaching about $3400. This equates to a drop of 80%. As with most hyped and overbought securities, many retail investors lost a lot of money in Bitcoin. And, as with most such losses, they can all be attributed back to a lack of discipline. Most investors know how to buy, but have no sell discipline. It’s clear that a sell discipline would have saved investors much of that 80% slide.
So: why are we talking about Bitcoin today? Well, from a technical perspective, Bitcoin is breaking out again as it did in late 2018. Perhaps opportunity is presenting itself in Bitcoin, for those who like to play the trading game on the wild side. The breakout from the downtrend channel that occurred in 2018 resulted in an upside move of 263%. Currently, we are again witnessing a breakout from a downward channel. If we take a measured move from the last move (pink bar) we can potentially see a rally of 126% – back to about 15,000. We are also seeing a positive divergence in relative performance against the $SPX which can be used to potentially confirm the move in Bitcoin.
If you have never traded Bitcoin, or don’t have a brokerage account that allows trades in Bitcoin, there is still a way to potentially benefit from this this move. As simple as it sounds, it’s to stay long the overall market. Bitcoin is considered a risk asset. As such, it tends to be a good gauge of how much risk investors are willing to take in the overall market. Since Bitcoin is a fairly new asset class, we don’t have a long track record to prove this claim but with the data that we do have we can see that the bitcoin bottomed before the overall market did and started breaking out again along with the market. As well Bitcoin topped out in 2017 before the overall market did. Currently we have a similar setup. As such, if Bitcoin continues breaking out, we could see the overall market continue to break out as well.
Jeffrey Gundlach is the founder of DoubleLine Capital which as an AUM of $140 billion (Source). He got his nick name as the Bond King due to his vast success in the bond market. Back in April 2018, Jeffery said on CNBC that “Bitcoin is the poster child of the social mood” Jeff continued to mention how Bitcoin tends to lead risk assets which you can see on the chart above. The full interview can be found here.
At the very least, we should keep an eye on Bitcoin for evidence of a market rally.
Keith at the Orlando MoneyShow this Friday