Yesterday, the DOW and S&P 500 managed to rally as the S&P 500 basically bounced off of it’s 50-day moving average, while the Nasdaq lagged and the ARKK ETF finished the day in the red, as selling hit many of the popular fad Robinhood 100 style names we have been seeing widespread weakness in for weeks. The big market move, though, came in Bitcoin, which dipped below its critical $50,000 psychological support level as the entire crypto coin market fell apart, with many coins downs 15-20%.
The supposed catalyst was Elon Musk’s strange announcement that Tesla would no longer accept Bitcoin, because it uses so much energy that it hurts the environment. It’s hard to believe that he suddenly came to this realization, so it makes one wonder what his real reason is.
I have no idea, but what is clear to me is that this crypto decline was coming. I warned at the end of last month that a Nasdaq correction was likely to play out in May and if it did we had to expect the crypto market to implode. Bitcoin and crypto coins have never acted as safe havens in the financial markets. In fact, Bitcoin is most closely correlated to the action in the Nasdaq. When the Nasdaq has a big run like we saw last year, cryptos tends to go up more and when the Nasdaq corrects they crash.
This has been the trading history of Bitcoin since its inception and it’s happening again. It has never gone up when the stock market has gone down.
What is bad about crypto, though, is that there are no real trading regulations for the crypto coins so they are prone to blatant manipulation on a level beyond what people think happens with stocks. The entire Dogecoin thing is controlled by 11 people who own half of the Dogecoin “coins.”
The notion that Bitcoin is a safe haven against currencies or financial turmoil is a myth and a bunch of misinformation fed recklessly to people, by some who should know better and others who are simply caught up in the crypto bubble and will believe anything that can be used as a reason to believe that the price will go up for them.
If you listen to the Bitcoin community they often portray people who do not invest in it as “skeptics” or “doubters” as if they are akin to religious people talking about people who do not believe in their religion. For them investing is like religion – you do things based on belief. There is nothing wrong with religion. Religion is good, but the crypto community is a cult. It acts like one by having leaders that constantly insult people who do not believe in the coins.
In reality, to trade to win you must do so based on charts and facts and you don’t make decisions in the markets the way one decides whether or not they believe in the Bible or not. And Bitcoin is a false idol now causing people to suffer as their belief in it is being proven to be based on false premises yet again. If it was a safe haven it would be going up now and not down!
Now Bitcoin is tipping below $50,000 to not only fall below support, but to complete a head and shoulders pattern , which means it is falling into a technical slaughter box trap door.
There is no way to know really where Bitcoin will bottom, but I’ll take a guess it’ll put on some sort of low around its 200-day moving average, probably coinciding with whenever the current correction in the Nasdaq ends, more on that in a second.
But first, I want to point out to you that on the above Bitcoin chart the on balance volume indicator on the bottom was going sideways when Bitcoin went from $30,000 to $60,000. This is completely bizarre and not normal for any market.
What the indicator does is measure the volume on up days and down days. So, while Bitcoin went up during that time there was just as much real selling volume as there was buying volume. I don’t think I have ever seen anything do that before – doubling in price with no big increase in buying volume.
What it suggests is blatant price manipulation via walking trades. I warned on this in my April post on Bitcoin, explaining exactly how crypto manipulation could be taking place.
We got a bounce in the markets yesterday, but the VIX fell too. I’m still looking for a VIX move above 30 to bring in a panic bottom end to the current correction in the Nasdaq as I wrote yesterday. The way things are lined up on the charts this could happen next week. So, even if the selling has been bad in some stocks and in crypto it won’t go one forever like this. After this weekend, it will be time to start to look for what will actually led the markets on the next rally and be worth buying – hint look for things that don’t pull back much during a correction. The sectors and stocks with strong relative strength like that tend to lead on the next rally. You gotta focus on the emerging new leaders and not the past fads to win at this game now. We are in a great rotation change moment. This is 2021 and not 2020.
-Mike
