Some like it hot

December 2, 20207 Comments

Some like to play with fire. For those folks, there’s always day trading, or buying into a momentum play. There’s also investing in themes. Back in the late 1990’s the big investment theme was “dot com fever”. In the early 2000’s there was a real estate bubble along with “peak oil theory”. Just a couple of years ago we saw the “marijuana madness” investment theme, and with that, the “bitcoin bubble”. Since 2017, we’ve seen the “FAANG’s forever” theme take hold. For those who just love jumping on the next thematic play – there seems to be a revisiting of bitcoin and crypto currencies play. That, and Tesla.

Today, just for kicks and giggles, I thought I’d take a quick gander at the charts for bitcoin and for Tesla. I’ll write my two cents worth (or should that be, my two bitcoins worth) re their technical profiles. Lets get at it:

Bitcoin

The above chart of the NYSE Bitcoin Index suggests a potential breakout through 2017’s speculative peak high. We’re about a week into that break, so its too early to stamp it as the genuine article. Of concern are the declining stochastic and RSI indicators. New highs with declining momentum means a divergence is occurring. That adds evidence to the thought that investors wishing to jump on this train might want to exercise caution and see if the break can last. See my book Sideways for the “3 bar rule”.  On the positive side, MACD is rising with no sign of longer termed momentum breaking. Again, a week or two of solidity above 19,300 on the index might just be a good sign for the cryptocurrency gang.

Tesla

Declining moneyflow momentum (top pane) and diverging RSI suggests a similar concern as the Bitcoin index. Stochastics is pretty overbought, although its flat of late. MACD is crazy overbought, but its not slowing….yet. Cumulative moneyflow (bottom pane) is trending up, which is bullish. This stock presents a very mixed bag of overbought divergences, yet positive longer termed indicators. Still, it makes me a bit nervous when I see this kind of mixed bag.

This is just an opinion, but for what its worth… Tesla’s chart and its forward PE ratio of a mere 250 (um, ok…) suggests a parabolic rise in earnings over the next decade. Perhaps Tesla’s shareholders are under-estimating an onslaught of competition to come by the big automakers. Or its just a bunch of momentum traders here for a good time, not a long time…Just sayin’…

Of note

  • I am working on creating a very to-the-point “show” for YouTube called “Smart Money, Dumb money“. It will be aired weekly and linked to the blog, along with a separate webpage for historic episodes. This should launch by the New Year.
  • We will be doing live “Ask me Anything” Zoom seminars starting in the New Year. The great news is that I will have Craig Aucoin (VT’s CFA and Fundamental Analyst) alongside me for those events. We’ll conduct it a little like my BNN MarketCall show, where you can ask both technical and fundamental questions. Stay tuned for that.
  • We just posted the November results for our equity and Income Platforms here.
  • Finally – I am writing a new book on contrarian investing.  I’m really excited by this project. It’s going to be one of the few, if any, pragmatic (rather than philosophical) guides to contrarian trading available. Of course I’ll cover the traditional indicators like the VIX, put/call etc – but I’ll also uncover some exciting new tools I’ve been researching of late. I hope to have it done by the summer.

7 Comments

  • thanks so much for the analysis…might put a little bit in that new qbtc and see what happens

    Reply
  • Hi Keith, thanks for sharing your thoughts. Is all this exuberance in the market and speculative investments like bitcoin at or near all time highs an indicator that were nearing the top of the market… seems like when everyone joins the party and it feels that stocks will go up forever it’s time to be cautious.

    Reply
    • Sonny–there may be reason for a neartermed pullback, but seasonal influences and resumption of positive breadth (vs. the concentration in tech names back just a few months ago) suggests any pullback will be shallow. Re the speculation on things like bitcoin or tsla–these are more individual cases, not as widespread as the stay-inside stocks and FAANG concentration of the summer. For example, despite the bubble in bitcoin and pot stocks a few years ago, the rest of the market was unaffected. Id be more concerned if speculation was “bigger” such as during the other times noted in the blog (2000 tech bubble, 2007 oil /real estate bubble). Hope that helps

      Reply
  • With TSLA joining the S&P, do funds slowly buy in till date or just buy in on day of entry? Are they waiting possibly for a little correction at a lower price?
    peter

    Reply
  • Hi Keith. Not a question related to this topic, but when in general do you think people can jump in and buy stocks that have been sold off due to tax loss? Is most of the tax loss selling done by mid December. I want to jump into Enbridge, but not sure of timing. Thanks so much.

    Reply
    • Tax loss selling often peaks in the last 2 weeks of the month. You have to sell in time to allow 2-day settlement before the last day of the year–so much of the selling is done just prior to that–pretty sure that works out to be December 29th this year (check with your brokerage)–so to buy those stocks, assuming they have been a victim of that selling, you buy up to Dec 29.
      Note that energy has had a resurgence as the crowd has been moving into it. ENB is up 20% since its lows just recently–the talk around energy is becoming bullish so it may not be as heavily sold as something everyone has hated like REITS. Still, people sometimes sell one stock, buy another in the sector to stay in the game. Or buy an ETF with pipeline (or whatever the sector is that is down) to maintain exposure

      Reply

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