Bitcoin Analysis Intro - Major Indices Open Lower

Published on January 10, 2018 @ 8:03am

The markets served up some modest weakness in the last few hours of trading yesterday - once again suggesting the possibility of a looming short-term reversal. And sure enough this morning, we're finally seeing the downside follow through we've been anticipating for a few days now.

It's probably a little frustrating for those who acted on our recently suggested NASDAQ short via SQQQ or some put options on the QQQ's a few days ago - only to have to cover that up yesterday. However, for those who were a little patient and entered yesterday - or stuck with the trade - things are looking pretty good for you right about now.

No guarantees the markets will continue lower following this morning's gap lower on the open, but it does appear the continued bullish thrusting across all of the major indices in recent days could be in jeopardy. Nothing whatsoever to cause any sort of long-term concern, as these markets are simply due for at least a minor breather.

The daily chart of the NASDAQ Composite here shows you what's taken place already this morning. As you can see, it appears the NASDAQ has had enough thrusting to the upside for the time being. We suspect we could see a move to just under 7,100 before the Index might be in a position to move higher again. We'll see.

There's no question we've seen quite a bit underlying volatility in many names and various sectors since the beginning of the year - despite the consistent moves higher across all of the major indices. However, we're very convinced the long-term bull market is still fully intact.

Gold, oil and commodities in general continue to do well, while the dollar just can't seem to find its footing following our bearish call a few months back. This morning, with short and long-term rates seeing a bump, the dollar once again put in another new short-term low this morning, which you can see in this daily chart of the US Dollar Index below.

For those who are wondering what continues to happen with the dollar, Trump made it very clear throughout his presidential campaign that the US had been getting out-gamed by other major world powers on the currency front - specifically China debasing their currency in an effort to prop up own Country's exports.

Now, we're seeing a bit of debasing in the dollar to help the US build its export business, while also increasing productivity on the industrial manufacturing front here in the US. It's simply a return to an older more conservative economic model that focuses more on what's going on here at home, rather than what's going on abroad.

While we're on the subject of currencies, we get a lot of questions regarding bitcoin and the plethora of alt coins that have hit the crypto currency world over the last several months. Although we can't cover everything in a single edition, today marks the first day we'll start actually providing some thoughts and technical analysis on the topic going forward.

First, let us just say crypto currency is probably the single most speculative thing to hit the markets since the development of the commercial internet, and we all saw what happened there. Meaning, when it was all said and done, there did end up being tremendous opportunities in certain stocks, but it didn't come without a massive sweeping meltdown first - one that caused many young and old investors alike their entire nest eggs.

What we're saying here is although there may very well be an opportunity in crypto currency going forward, it's not likely to come without some sort of massive meltdown first.

Why? Because when you've got kids at work hanging around the water cooler - who know nothing about stocks or the markets in general - running around talking about how much money they've made in crypto currency over the last several months - our experience says now's not the time.

It reminds many of us of what took place just prior to the Dot Com Crash. Meaning, a massive washout before the real opportunity surfaced. Sure, if you had bought Bitcoin at any point over the last several years and held it, you obviously hit one of the biggest homeruns of your life.

However, it's never really as much about when to buy, as much as it's always more about when to sell. We know many folks who did actually buy it years ago, but most of them had already sold it for some decent profits along the way. In other words, we don't know anyone who bought enough or held it long enough to change their life forever.

We'll save our fundamental and theoretical analysis of crypto currency for another day, but we'll start our coverage of bitcoin today by providing some technical analysis of both the NYSE Bitcoin Index and GBTC - the Bitcoin Investment Trust, which is actually a stock anyone can trade.

Provided below is a weekly chart of the NYSE Bitcoin Index and a daily chart of GBTC - including a number of key retracement levels and some pivotal arrows in white.

As you can see, now that the pros have stepped in with the CBOE opening up options trading in recent weeks, things are now starting to become fairly orderly. The NYSE Bitcoin Index closed last week on a very key 5/8th's retracement level (top arrow). Meaning, any significant move above roughly 16,067 could potentially spark another sharp move to the upside.

However, you can also see the middle arrow, which points to where the Index is at this week, and the bottom arrow, which represents what we believe would be a nice risk/reward entry into Bitcoin - specifically 8,442 on the Index. That's where we'd like to see the Index get to before we'd suggest taking any sort of significant shot. This is assuming of course there's no significant breach of the 16,100 level to the upside, which might also warrant a highly speculative bullish entry.

As for GBTC, you can see much of the same, and now that the pros have stepped in, there's a game of chicken developing, which we've circled here. In short, the top arrow would represent a potential shorting opportunity around $2,615 - assuming it wasn't breached sharply to the upside.

Conversely, the bottom arrow would suggest the opposite - a potential long opportunity around $1,837. Anything in between, we'd strongly suggest staying away.

So there you have it - our first commentary and analysis of crypto currency. Along with many other market pros, we're now stepping into the analytical picture.

When we get another opportunity to cover our theoretical and fundamental views of the crypto currency space, you'll be the first to know. We've been doing quite a bit of research lately on the space, but we're still convinced there's far more to go before we'll feel comfortable in knowing we can help all of you take advantage of any potential crypto currency opportunities on a go-forward basis.   

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