In yesterday’s Daily Cut, we mentioned the potential for a Santa Claus rally for the stock market.
That’s the idea that stock prices tend to increase in December.
If we accept the rally started early, the market is already up 11% since the October low.
While that’s pretty good, is there something better?
An investment opportunity even better than the Santa Claus stock rally?
You know what we’re talking about… that’s right, bitcoin.
Because since that stock rally began in October, bitcoin is up more than 28%.
And as we explain below, much bigger gains could be in the cards. We’ll take you through that shortly. But first…
Market Data
The S&P 500 closed down 0.4% to end the day at 4,549.34… the Nasdaq fell 0.6% to close at 14,146.71.
In commodities, today’s prices and the gain or fall over yesterday, West Texas Intermediate crude oil trades at $69.37, down $3…
Gold is $2,043.60 per troy ounce, up $6…
And bitcoin is $43,819, up $62 from yesterday.
Now, back to our story…
The Fallacy of Needing to Understand
Before we get to the guts of today’s story, we have a confession.
Your editor is not a bitcoin fanatic.
To be completely truthful, aside from checking the price most days, we have very little interest in it.
We don’t understand it. We don’t get how it works.
But we’ve still invested in it (although to be honest, it’s a relatively small allocation in our portfolio).
The truth is, despite knowing very little about it, we know a trend when we see one. And we can see the benefits of it as explained to us by Teeka Tiwari and others.
What’s more, we don’t believe that not understanding something should prevent you from investing in it.
Take stock investing.
Our personal stock portfolio is full of companies we don’t fully understand.
We own stock in a couple of casual dining restaurant chains – we know nothing about the restaurant business. But we figure, people gotta eat… and people like going out to eat from time to time.
So that seems like a good business to us.
We own a couple of railroad stocks – we know nothing about the railroad industry… except that we can’t help but stop and stare every time a freight train passes us by!
More importantly, we figure goods have to get from A to B. Railroads are a pretty good way to do that. So that seems like a good business to us.
And we own a couple of retail stocks – again, our knowledge of the retail industry is close to zero. Except for the fact that people like buying things more than they like making things.
That seems like a good trend for retailers. And that seems like a good business to us.
And so on.
In fact, as we glance at our stock portfolio right now, there isn’t a single company where we could honestly say we have a mastery of its industry.
The good thing is, we don’t need to master everything.
We bought those stocks because we liked and understood the basic idea or the broad trend behind them.
Or because we’ve read research from others that made a great case for investing in them.
We mention all this because the lack of understanding of bitcoin is one of the biggest underlying reasons why people avoid it.
Or rather, that’s what they say…
The Biggest Investment Trend in 100 Years
Take these survey responses as an example.
According to a Yahoo! Finance story in November 2021:
A recent survey of 1,000 people across the U.S., Mexico, and Brazil showed that 98% of people don’t understand basic crypto concepts. For instance, 90% didn’t know that the bitcoin supply is capped at 21 million. Equal numbers didn’t understand stablecoins, either.
Or this from the Pew Research Center in April this year:
Among the vast majority of Americans who say they have heard at least a little about cryptocurrency (88%), three-quarters say they are not confident that current ways to invest in, trade, or use cryptocurrencies are reliable and safe…
And this from a crypto research firm, The Block, in May 2022 noted:
Fifty-one percent of respondents in the survey, which took place in January and February and focuses on 14 countries, said the main reason they do not buy bitcoin is that they ‘don’t know enough about it.’ Other major reasons include cybersecurity and theft risks (32%) and too much price volatility (30%).
Going back to the Pew Research Center survey, it found:
On the other end of the spectrum, few of these adults are extremely (2%) or very (4%) confident in cryptocurrencies. About one in five (18%) say they are somewhat confident.
Of course, we understand why investors can feel cautious about it. When bitcoin hits the mainstream news headlines, it’s rarely because of a good news story.
It’s almost always because the price has collapsed… or a bitcoin broker has gone bust… or someone has used bitcoin to commit fraud or some other criminal activity.
All of those things only serve to do one thing: To keep regular investors from taking a chance on the biggest investment trend in more than 100 years.
To say that’s a crying shame would be an understatement.
Especially when you consider the gains investors have been able to make from crypto since it broke away from the “fringe” in 2016.
That was really the year when folks started to pay attention to it. It went from being a far-flung fringe idea to being much closer to a mainstream breakthrough.
Yet even today, it’s fair to say that bitcoin isn’t entirely mainstream. Not compared to stocks. And so, as we see it, it can’t just be a lack of understanding for why more folks don’t invest in bitcoin…
Our bet is that’s just an excuse… or the only way they can rationalize it in their mind. What they likely mean is that they can’t access research to help them understand it.
Not so much research that they need to become experts… but enough to help them feel comfortable with it… to get the basics.
That’s really where Teeka Tiwari – the editor of Palm Beach Letter, and his premium crypto service, Palm Beach Confidential – has stood out from the crowd.
Helping Investors Understand the Idea Behind Bitcoin
Rather than bogging them down in the technical details, mechanics, coding, and math that goes into bitcoin and cryptocurrencies, Teeka helps his readers understand the idea.
He explains why bitcoin is important…
Why various cryptos provide – or can provide – an important service…
How the banks and big investors have changed their tune on bitcoin so that they’ve changed from criticizing it to becoming some of the world’s biggest investors in it…
And how JPMorgan Chase & Co. CEO, Jamie Dimon, went from calling it a “fraud” in 2017 to endorsing JPMorgan’s development of its own in-house “JPMorgan coin”.
Of course, Dimon still isn’t a fan of bitcoin… even though JPMorgan itself uses blockchain technology. He doubled down on his bitcoin comments earlier this year, by calling it a “hyped-up fraud”.
And in comments before the Senate Banking Committee today, he said, “If I was the government, I’d close it [bitcoin] down.”
But like anything you hear from Wall Street, pay attention to what they do rather than what they say.
The fact is, that kind of rhetoric from Wall Street doesn’t help investors. It scares them… and unnecessarily so.
Teeka takes the opposite approach. He sees his role as helping regular folks to understand seemingly complicated subjects, so they have the information they need to make an informed decision.
Calling something a “fraud” because of vested interests or because they don’t understand it doesn’t help anyone.
And of course, when you look at what Wall Street is doing, it tells you what they really think of the investment opportunity.
Two of the biggest investment firms on Wall Street – BlackRock and Franklin Templeton – have filed with the SEC to launch a bitcoin ETF (exchange-traded fund).
When you consider BlackRock has more than $10 trillion of funds under management, you can imagine the opportunity they see with a bitcoin ETF. They wouldn’t bother if they thought this was a meaningless trend.
They’re in it because they can see it’s a big trend.
A trend that’s only likely to grow as more and more investors become familiar with it. And as the SEC approves these ETFs, you can bet your bottom dollar the attitude towards bitcoin on Wall Street and the mainstream press will change.
Simply because bitcoin will have moved from an asset that’s “outside” Wall Street – an asset on which they can’t generate fees – to an asset that will become completely “inside” Wall Street.
An asset on which Wall Street will collectively begin charging tens of millions of dollars in fees for holding it in an ETF.
And along with that, will come education and marketing.
TV ads, radio ads, billboards, banner ads on websites… sports sponsorships… heck, if the SEC approves these ETFs, you can pretty much guarantee a bitcoin ETF ad will appear during next year’s Super Bowl.
In short, despite everything the mainstream has put up against it, to paraphrase John Adams, “Bitcoin survives.” Investors are beginning to take more and more notice of it and are beginning to appreciate it as a genuine asset.
What’s more, if Teeka is right about the direction for bitcoin, not only will it be a genuine asset on Wall Street, but it could be the single best-performing asset for 2024.
Now is the time. Get educated on it. Your excuses for not doing so have just about run out.
Here’s What the Technicals Say
Aside from the fundamentals of bitcoin, we know many folks take an interest in the technical analysis side of things.
For that, we turned to colleague Imre Gams. Imre has traded the markets for more than 15 years. He’s traded just about everything possible to trade.
That includes stocks, commodities, currencies… and bitcoin.
So we asked him what he saw as the outlook for the bitcoin price action. Here’s his take, along with a couple of nice charts…
Bitcoin’s been on a tear lately.
The king of cryptocurrencies has recently broken above $40,000. That’s a major milestone.
The last time bitcoin traded at $40,000 was in May 2022. Everyone wants to know what’s going to happen next.
I’m not going to mince my words. Bitcoin is going to break to new all-time highs. According to my technical analysis, it’s because of a recent development in bitcoin’s price chart.
On November 6, Market Minute readers were shown a version of this chart:
There are two important things going on here.
First, bitcoin was able to trade above three key moving averages by mid-October.
Breaking above the 20, 50, and 200-period moving averages tells us that bitcoin’s short, intermediate, and long-term trend is up.
But to really get some momentum going, bitcoin had to clear its trend channel (the red parallel lines).
Breaking out of that trend channel would allow bitcoin to achieve what I call ‘escape velocity’. In other words, get some real momentum going.
And that’s exactly what happened next. Check out this updated price chart of bitcoin below:
As you can see, we’ve clearly broken out of that channel. And once we did, prices accelerated sharply higher.
But it’s not all clear skies ahead. While bitcoin will eventually break to new all-time highs, there will be a few speedbumps along the way.
Notice how far away bitcoin is from those three key moving averages. That’s a sign that momentum has reached a bullish extreme.
A market’s price movements are a lot like an elastic band. You can only stretch an elastic band so far before it has to snap back.
Given that bitcoin has shot up nearly 60% since the start of October, the odds are high the band is near its breaking point.
We likely need to see prices ‘snap back’ before bitcoin can run even higher. In trader speak, this is known as reversion to the mean.
A likely ‘snap back’ target would be the top of the broken trend channel. This target happens to coincide with the daily timeframe’s 20-period moving average (the short-term trend indicator). That means a possible pullback to around $38,000 or so.
How you use this information depends on the kind of trader or investor you are. If you’re in bitcoin for the long haul, then such a pullback won’t faze you. You might even want to use it as an opportunity to buy the dip.
But a shorter-term trader might want to consider taking profits here and reloading once the pullback is finished.
Imre’s prediction for a “snap back” in the price fits in with what Teeka and his team expect.
As they’ve written in Palm Beach Daily over the past few days, often leading up to the “halving” even for bitcoin, the price tends to fall sharply before moving on to record new highs.
That typically happens at the six-month and two-month marks before the “halving.” The next bitcoin “halving” is forecast for around April next year.
[The “halving” is when rewards for mining new bitcoin halve. Currently, a bitcoin miner receives 6.25 bitcoin as a reward for solving the algorithm. After the “halving”, that will drop to 3.125 bitcoin.]
So there you have it. There really shouldn’t be any excuses for not considering bitcoin as part of an investment portfolio. Using a “lack of understanding” is just an excuse.
The real reason is the lack of access to information to help understand it. We’ve shown you where to get the information… and Teeka can deliver that information to you. Check it out here.
“Third Wave”
By the way, if you’re ready for the next step… if you feel you have the basics, and you want to know more, Teeka is holding a special presentation on what he calls, the “Third Wave” tonight at 8 p.m. ET.
It’s free to attend and will be packed with information and analysis on what’s coming next for bitcoin and crypto. Just click here to enroll.
Unconnected Dots
Our main task at the Daily Cut is to try to “connect the dots.” That is, we help you figure out what events are about, what makes them important, their consequences, and what it all means for you.
But sometimes, we see the individual “dots,” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.
Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
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More reasons to at least be cautious about the current stock rally. Bloomberg reports:
The message coming from Wall Street is that investor optimism is running dangerously high.
Overstretched technicals and the belief that the Federal Reserve won’t cut interest rates as quickly as markets expect are driving a sudden pessimistic turn from equity specialists at JPMorgan Chase & Co. and Morgan Stanley. As Goldman Sachs Group Inc. Managing Director Scott Rubner put it in a report, there are ‘no longer any bears left.’”
All the bears have gone… only bulls remain in the market. We’re not so sure that’s true. But as we mentioned at the top of today’s letter, the S&P 500 is up more than 11% since late October.
The average gain going back nearly 100 years for November and December is around 2% combined. Not everything “reverts to the mean,” but it makes sense to be cautious.
More Markets
Today’s top-gaining ETFs…
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Global X Lithium & Battery Tech ETF (LIT) +2.6%
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iShares Home Construction ETF (ITB) +1.7%
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Franklin FTSE Japan Hedged ETF (FLJH) +1.7%
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WisdomTree Japan Hedged SmallCap Equity Fund (DXJS) +1.6%
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Utilities Select Sector SPDR Fund (XLU) +1.4%
Today’s biggest-losing ETFs…
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Invesco Energy Exploration & Production ETF (PXE) -2.8%
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iShares MSCI Turkey ETF (TUR) -2.6%
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iShares U.S. Oil & Gas Exploration & Production (IEO) -2.5%
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Invesco DB Commodity Index Tracking Fund (RZV) -2.4%
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Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) -2.4%
Mailbag
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at feedback@legacyresearch.com and just type “Daily Cut mailbag” in the subject line.
Cheers,
Kris Sayce
Editor, The Daily Cut