Weekly Update: Bitcoin Is Out of Gas
Good evening, and welcome to this week’s edition of Stealth Trades!
On July 10th, I called a BUY in Bitcoin.
It was emerging from a classic breakout pattern. The stock market was full steam ahead. It was a “risk on” environment.
It should have run 40-50%…
But it didn’t.
BTC rose nicely for 2 days, but that was it. No follow through. No rally to 140k like I was expecting.
After a few weeks I sold my position near breakeven. And after taking a step back on the chart, I probably should have known better.
Below is a daily chart of Bitcoin from January 2023 to present.
I put it in logarithmic scale in order to equalize the rally heights.
You’ll notice a very clear pattern here…
Big move higher, followed by a 6 to 12-month consolidation, leading to another big move higher.
The July breakout was to be the 4th such move. It was late in the cycle. And betting on another burst higher was a low odds bet.
Most stocks (or cryptocurrencies in this case) see 3 to 4 rallies during a Stage 2 uptrend. If you can catch the first one, you will make a lot of money very quickly.
That’s what we did with SMR and OKLO back in May when the market was just coming off the bear market lows.
The second breakout, assuming you are still in a healthy bull market, can be equally powerful.
The third one is a little riskier. Your odds of success go down a hair and the percentage move is generally a bit less, but I will still take them.
After that though, the odds go way way down.
Fourth and fifth phase breakouts have a much higher failure rate. In hindsight, I should have focused on other stocks in earlier Stage 2 advances. Or just sat out until new opportunities emerged.
Sometimes, the best trade you can take is to stay in cash.
This is a tough one for me. I hate seeing my money sit idle. I want to find a new opportunity to keep the compounding going.
Lately I have been focused on the solar, homebuilding and building materials sectors. These have outpaced others over the last few months and appear to be emerging as new areas of leadership.
I took a position in Shoals (SHLS) last week on this breakout through $6.50.
It showed initial strength but has failed to follow through.
Today we got news that core CPI came in at 2.9% which is the highest we have in six months. This is also the Fed’s go-to inflation metric, casting doubts on a September rate cut.
This took a toll on the indexes Friday and stalled rate-sensitive stocks like lenders and homebuilders.
I hope to get more clarity from the market after the September 17 Fed meeting. If Powell decides not to cut, we will likely see a short-term pullback of 5-10%. A 50-basis point cut, on the other hand, would send stocks soaring.
Once again… Powell holds the reins.
Best wishes for your trading,
