Quiet Start to Week?

‘The beginning of this week is probably going to be fairly quiet, with Monday having no economic announcements of note. Because of this, we will more likely than not see a bit of follow-through from last week when it comes to most markets. Even if we don't, it seems a bit of a stretch to think that the markets overall will just simply "flip the script" without some type of external pressure.

These pressures would probably come in the form of geopolitics or the like, as it certainly won't be something along the lines of a country releasing some type of shocking macroeconomic indicator. That being said, on Tuesday we get the interest rate coming from Australia at 3:30 AM GMT. It is expected to be a "steady as she goes" type of event, with the RBA holding interest rates.

Sentiment and Other Such Noise

What's been interesting over the last couple of years is that you can constantly find somebody screaming from the rooftops about how the market has it all wrong. For example, Value Line’s Median Appreciation Potential is an indicator that suddenly popped up in a conversation I had. Essentially, it predicts with stunning accuracy the S&P 500's return over the next 3 years.

Now, I would be remiss if I didn't point out that, despite the fact that this indicator suggests that we will get poor equity returns over the next 1 to 5 years, the reality is that we continue to see a lot of these "never miss indicators” fail to see what happens next. I'm not picking on this particular indicator or the analysts that brought it up, just pointing to the fact that there are a lot of "the sky is falling” analysts out there. I think most of this comes down to the fact that the stock market continues to outperform most estimates.

At the same time, we have to take a look at crypto. I will admit quite freely that I think Bitcoin is complete bullshit. I have been in the financial markets for 15 years and have heard multiple stories about what Bitcoin is. Typically, the response when I ask a few questions is “You don't understand Bitcoin.” Yes, I understand it is a distributed ledger. I also understand that the Templars used it in the 1200s. Granted, it's a lot more technically efficient than it was back then, but it's not really that innovative.

I've been told that Bitcoin is "money," “digital gold”, “a solution for profligate spending by governments,” and that Bitcoin fixes this.” It's been a couple of decades, and I still cannot use it to buy anything on a day-to-day basis. To put things in perspective, I live in a metropolitan area of almost 3 million people. I know of no place that does transactions in Bitcoin. I do, however, understand the idea of Bitcoin in less financially stable markets. However, restricting use to small economies will, by its very definition, mean that the use will be limited.

Now, this does not mean that I think Bitcoin won't continue to go higher. I do believe that Bitcoin still has quite a bit of distance to go. What I am saying is that someday, Bitcoin will have to prove that it has real-world use. We are not there yet. However, I would point out the fact that I am starting to hear and see a lot of the same things that I see at every peak. For example, “Hawk Tuah”, a social media influence who is known for that exact phrase, and if you don't know what that phrase is, you can look it up online; recently, just rug pulled about $50 million worth of “HAWK” coin in the latest pump and dump crypto scheme.

Furthermore, I am starting to hear the Bitcoin Bros use the phrase “Have fun staying poor again.” I can think of nothing more telling than that exact phrase. It is normally spit out by people who have a crypto portfolio of just a few hundred dollars and have no idea what the hell they are talking about. Because of this, I do think that the sentiment has gotten way out of hand and that Bitcoin will be getting closer to a significant pullback. This is actually going to be a buying opportunity. The biggest problem here will be trying to have any semblance of timing. The problem with Bitcoin is that when it does fall, it can be absolutely vicious. At the end of the day, I guess I'm just saying to be prepared for a 20% drop sooner or later. This is part of why Bitcoin should only be a small percentage of your portfolio. A lot of the most recent excitement has been due to the crypto-friendly administration coming into Washington, DC, and the fact that BlackRock recently bought roughly $610 million worth of Bitcoin. That being said, they manage near $12 trillion.

Santa is coming. This is what I am doing.

This time of year brings in a phenomenon known as the "Santa Claus rally,” which is when money managers will try to buy anything and everything they can to pad their results for clients. This is why when you look back on December over the last several years, it's typically somewhat strong for a couple of weeks. I believe we have just entered that phase, and therefore I am expecting another run higher in several of the stock market indices.

While I could probably say the same thing about any index in the United States, I'm paying particular interest to the NASDAQ 100. I do believe that short-term pullbacks will continue to be buying opportunities, and I suspect that the NASDAQ 100 will do everything it can to reach 22,000 over the next several days. As soon as this market shows any signs of a pullback, I will be incrementally adding to my position. I believe that after the jobs report on Friday, US indices will continue to outperform as the United States added 5000 more jobs than anticipated. Further bolstering this claim would be the fact that the Canadians doubled the expected output, meaning that North America is still going to outperform the rest of the world.

Further driving home the point that the United States is the place to be right now would be the following chart. This is the AUD/USD weekly chart, although quite frankly I could have pulled up the EUR/USD, USD/CAD, or the NZD/USD charts as well, because they are telling the same story: Money is flowing to the United States and there isn't much anybody can do about it right now.

This is not the time to argue with the market and start to look at things and think that “things have gone too far.” Bullshit. Things always go too far. This is the way of the markets; they tend to run a massive distance, only to overcorrect. Unfortunately, this is the mistake that most retail traders make. They don't understand that technical analysis can work, but there has to be a reason for it to work. You cannot look at the chart of the Australian dollar right now and simply think, "Oh, there's a bounce just waiting to happen here.”

The reality is that the US dollar is swallowing everything. By contrast, the Australians just reported a GDP miss of 0.2% quarter over quarter. I am not saying that the market can't bounce; I'm just saying that the bounce will more likely than not be a selling opportunity. As things stand right now, the most important holding that you should have is the US dollar. US equities would also be in that category. Most other things are going to struggle until the US economy shows signs of slowing down.

Trade well,

Chris