Weekly Update: Crypto and Small-Caps Lead the Way
Good evening, and welcome to this week’s edition of Stealth Trades!
In last week’s update, we looked at the four major indexes to see where each stood. We pointed out that while the S&P was within 5% of its all-time highs, the Russell 2000 – which represents small-cap stocks – was a full 34% below its best mark.
Not only do small caps have further to run before hitting resistance, but they have also outperformed larger stocks in the Q4 rally.
In my opinion, mega-cap stocks like the “Magnificent 7” (Google, Nvidia, Apple, etc.) will not be the leaders next year. Small to medium-sized stocks will be the ones demonstrating the largest gains.
In fact, the 10 best-performing stocks in November were all in this group.
Biggest stock gains in November:
- Roku: +75%
- Coinbase: +62%
- Opendoor: +58%
- Block: +58%
- Shopify: +54%
- Datadog: +43%
- Snap: +38%
- Cloudflare: +36%
- Palantir: +35%
- Crowdstrike: +34%
With the exception of Palantir, all of these names are still trending beautifully and would be great stocks to buy on a pullback.
The other big development is happening in the crypto space.
Bitcoin broke out from a textbook consolidation pattern last week:
Bitcoin tends to trend well from proper buy points.
After a strong move higher, notice how the chart compresses during the month of November. Pullbacks become shallower as the chart moves from left to right – a clear sign of accumulation.
A close look at the volume bars at the bottom of the chart reveals another clue. Volume tends to be higher as Bitcoin moves up and lower when it moves down. This is exactly what you want to see. The volume chart should mimic what you see in the candles above.
We saw the same pattern before the breakout in October:
Here is a closer look at the price action:
I have drawn a line showing the progressive “shallowing” of the candles as the pullbacks compressed.
You can also see pockets of low volume each time BTC pulled back. The selling is taking place on lighter volume than the buying. This was a big clue.
The high-volume spikes all took place on days when Bitcoin was surging higher. And the breakout day saw the highest volume in over a month.
Trading is not about guessing. Traders who see the most success do not have any unique insight or forecasting ability. Instead, they are masters of INTERPRETING what they see on the chart.
I don’t care about being right. You shouldn’t either. It doesn’t matter how valuable a stock or cryptocurrency may be. The only thing that matters is if it is in demand… if large investors are buying it at a pace higher than it is being sold.
Plenty of stocks that are now delisted and worthless saw gains of several thousand percent at one point in the past. At that time, they were “hot stocks” that benefited from high investor demand.
In hindsight, it is easy to see that investors were wrong, and their bullish forecasts never came to fruition. But I am not Warren Buffett looking for stocks to hold for 40 years. Where the price is at some date years in the future is not my concern.
I want to make gains now. I want to be in stocks being actively bought by institutional investors that can deliver big profits in weeks and months, not years and decades.
If you bought Bitcoin at the October buy point, you would be up 54% in eight weeks.
That’s a heck of a gain. Professional money managers would be ecstatic to see a move like that in a year.
We bought two crypto stocks in my Alpha Stocks service when the Bitcoin breakout began.
We are up 36% on Bit Digital (BTBT) stock in ten days:
We also bought Marathon Digital (MARA) – a bitcoin mining company that was coming out of a similar breakout pattern at the same time.
Look what it has done…
If your goal is to find stocks that will produce a steady 15% for the next 10 years, I won’t be much help to you.
But if you want to nail down quick profits in the shortest possible time, this is the way to do it. Learn to read the charts and interpret what you see. That is the formula for market-crushing results.
Best wishes for your trading,
