Building on huge gains from last week … dissecting recent bullishness … bitcoin continues to surge
Over the weekend, all the major news outlets called the presidential election in favor of former vice president, Joe Biden.
Given that Trump is bringing litigation in several states, we won’t rule out the possibility for more election-based drama, but at the moment, it appears the world and the investment markets are turning the page.
Focusing on the markets, as I write Monday morning, stocks are surging to new, all-time highs.
The Dow is up over 5%, the S&P up nearly 4%, and the Nasdaq has pushed higher nearly 1%.
On the political front, stocks are breathing a sigh of relief for two reasons — one, the uncertainty of the election is largely over, and Wall Street hates uncertainty. With a Biden victory now called, Wall Street can begin to position itself accordingly.
Two, a “blue wave” doesn’t appear to have materialized. In other words, at the moment, it seems Democrats won’t be taking the presidency, the House of Representatives, and the Senate.
While this likely means more partisan gridlock, that gridlock may prevent legislation and/or restrictive policy that hampers corporate growth and higher taxes — that’s music to Wall Street’s ears.
Beyond the relief of the election being called, today’s rally is also being driven by news that a vaccine developed by Pfizer and BioNTech has shown better than expected results at protecting people from Covid-19.
From The Wall Street Journal:
The positive, though incomplete, results bring the vaccine a big step closer to getting cleared for widespread use.
Pfizer said it is on track to ask health regulators for permission to sell the shot before the end of this month, if pending data indicate the vaccine is safe.
Put these pieces of news together, and we have a surging stock market.
***Even better, we can add today’s gains to last week’s monster market rally
As you can see below, beginning a week ago, the three major indices are all up more than 10%.
So, what are we to make of this recent surge? Is it all blue skies from here?
While we should enjoy the up market, let’s also look at it objectively.
Markets with this degree of volatility — even though it’s good, “up” volatility — aren’t the best for sustained gains. Instead, you usually want to see a narrower trading range.
Our technical experts, John Jagerson and Wade Hansen, spoke to this in their most recent issue of Strategic Trader.
For newer Digest readers, in Strategic Trader, John and Wade combine fundamental and technical analysis, along with historical market data, to profitably trade options in many different types of markets.
From last week’s update:
Bull markets that break to new highs almost always occur with patterns of declining or flat volume and small trading ranges.
For example, in the following chart, you can see how even the most recent rally was characterized by falling volatility — as measured by the average true range (ATR) indicator — and volume.
This latest bull-market surge is coming with larger trading ranges and on heavier volume. In other words, it doesn’t have the traditional bull-market thumbprint that John and Wade like to see.
***Meanwhile, famed quant investor, Louis Navellier, just pointed toward two additional features of this bullishness we need to consider
Namely, short-covering and a temporary rotation into value stocks.
When I asked Louis this morning about today’s surge, he told me that we’re seeing a massive short-covering rally in REITs and other stocks that have lagged this year.
Unfortunately, a healthy market isn’t able to continue climbing based purely on short-covers.
In fact, Louis noted we’re already seeing today’s gains begin to pull back some (as I write mid-morning).
In his podcast today, he explained that today’s rally is based on money managers buying value stocks that have lagged this year (and covering their short positions). They’re doing this because they believe the positive vaccine news out this morning means the global economy will be recovering.
However, Louis points toward a similar value-rally last year that eventually fizzled, as the market returned to its preferred sector of growth.
In the same way, Louis expects today’s migration to value to peter out, and the market to return to a focus on growth stocks within days.
When that happens, Louis’ subscribers will be cheering it. After all, Louis’ stocks in his Growth Investor service have been crushing it this earnings season.
Case in point, 46 of the 49 companies on his buy list have posted results have crushed analyst estimates. To learn more about becoming a Growth Investor subscriber, click here.
***Switching gears, a word of “congratulations” to the bitcoin investors out there
For anyone not aware, bitcoin is also soaring.
We put this trade on your radar about one month ago.
From our Monday, 10/12 Digest:
… in general, bitcoin tends to have three directions: up sharply, down sharply, and sideway … there is little gradual-up or gradual-down.
Right now, bitcoin appears to be setting up for its next major move.
We then provided the chart below. It showed bitcoin’s price action with trend lines added to highlight a compressing wedge pattern.
We drew attention to bitcoin’s price pushing through the top of its upper trend line, suggesting this boded well for a bullish breakout.
Here was the chart from 10/12:
Since then, bitcoin has exploded out of its wedge pattern, and gained 32%, as you can see below.
In our 10/12 Digest, we went to our crypto specialist, Matt McCall, to get his thoughts on the breakout — specifically, whether it was a real, sustained move, or just a temporary spike.
From Matt a month ago, when bitcoin was trading at $12,965:
This is the breakout I have been looking for.
After months of consolidation, bitcoin is breaking out of its most important trading range. It’s now well on its way to $15,000 in the near-term.
Matt’s call was spot-on. As I write Monday morning, bitcoin is trading at $15,028, after having gotten up to $15,500 over the weekend.
Though we wouldn’t be surprised to see more profit-taking given this meteoric climb, bitcoin has huge tailwinds behind it — most notably, the egregious fiat currency printing that’s happening today on global scale.
As the “race to debase” continues, we expect the coming quarters and years will see bitcoin’s price climbing far higher.
***While we expect big things from bitcoin, expectations are even higher for elite altcoins, such as the ones Matt holds in his Ultimate Crypto portfolio
From Matt’s recent issue:
The bottom line is that bitcoin and the entire cryptocurrency sector remain in a really good place for right now and for a long time to come. And more importantly, it is not too late to position yourself for big gains in the future.
As a matter of fact, after pulling back from their highs, most of our altcoins are screaming buys.
As one example, we can point to Chainlink (LINK).
In Matt’s issue, he notes that the altcoin recently launched a new service on the Ethereum blockchain that lets game developers create random outcomes that are more decentralized. This feature is very important to the future of altcoins and blockchain.
Matt’s subscribers have already locked gains of 552% on a 1/3rd portion of their LINK position, and expectations are high for the remaining 2/3rd position.
To learn more about Matt’s Ultimate Crypto service, click here.
We’ll continue to keep you up to speed on the crypto world here in the Digest.
Have a good evening,
Jeff Remsburg