We are getting close to the second half of this year 2021, as we are about to end month five of 2021 of market trading, and I want to help set you up to beat the market averages and win for the rest of this year. Right now with the recent declines in the crypto collectible coin market and many fad tech stock plays that make up the bulk of the Robinhood 100 most owned list that is not happening for very many people, but it can happen for you if you take two simple steps.
I am going to talk about step two tomorrow – which is buying some new things that are positioning themselves to become the next market rally leaders. Yes, gold, silver, and mining stocks, such as my top stock pick for this month, are among those things, but there are more too. And I’ll talk about them tomorrow and why they will lead.
But first, we must talk about step one and that is a step that no one wants to tell you right now, because frankly no one wants to hear it. If you turn on CNBC all they will talk about is buying and if you listen to crypto collectible cult leaders all they are talking about are more wild price predictions and pure hype to justify holding in the face of broken charts and downtrends, because that is what the crypto HODL folks want to hear now.
Step one that no one wants to say to you is to sell broken positions.
That doesn’t mean sell everything, but it is to sell things that are now falling faster than the S&P 500 since February on down days and are thereby lagging to the downside. Such things, that have broken charts, are not going to lead on the next rally, but are now going to be dead money situations.
Bitcoin is a lesson in why.
Markets rallies end when everyone that can buy something buys it so there are no longer any buyers left. The sellers then take over the trend then turns down. That happened with Bitcoin as at the end of last year 1.5 million Robinhood people owned a crypto currency. By the end of March, that number grew to 9.5 million out of 13 million Robinhood traders.
A lot of these are people who only started to trade the markets in the past twelve months and really have no idea what they are doing.
All of these losers in the Bitcoin market are now overhang for it. Many of them are now holding in defiance of the trend and telling themselves that they are doing the right thing. I see this on my Facebook page from local people who got drawn into the crypto market, but check out this Youtube video from a Poker player podcast. These are poker players who got attracted to Bitcoin and are telling themselves that their losses are not real unless they sell.
Check this out at the 3 minute mark.
These people are not professional traders or investors and are not pretending to be, but their attitude is pretty widespread now for HODL types in the crypto space. Oh, it’s down, but they are telling themselves the losses aren’t real. They are refusing to look at the trend or don’t even know how, and many of them are using apps like Robinhood where even seeing the overall trend is difficult to do, because the apps focus on daily price gyrations, with no meaningful information.
But the crypto market is broken now, just like it fell apart in the first quarter of 2018, after peaking in December of 2017. It took over four years for it make a new high. It could take even longer this time, but even if it is only another three years before Bitcoin makes a new high from here that will be so much time that many HODL types will eventually lose their patience on it and sell.
All these buyers that came in at higher levels than where it is now are now potential sellers.
This is why the crypto market is now dead money, except for daytrading wizards jumping in and out and fading rallies.
But masses of people are trapped in this, and are now in a situation where they won’t be able to beat the performance of the S&P 500 for the rest of the year unless they sell and move that money into winning situations.
They must take this step one or they will realize one day that HODL = LOSR.
But crypto collectible currencies are not the only broken things in this market. Stocks that had big runs from November to February and now are down 20% or more from their February peaks are dead money too. Stocks below their 200-day moving averages are ones to sell and avoid.
This is not the situation for many of the stocks inside the S&P 500, but is for many of the stocks that make up the top 100 Robinhood stocks and are inside meme stock ETF’s, such as Cathie Wood’s ARKK.
To beat the market you want to be in stocks that fall less than the stock market does when it pulls back. Things that collapse take a long time to go into a new sustainable bull run, because it simply takes a lot of time of time for the people who bought in on the top to get out and sell.
Only then can a new sustainable uptrend begin.
Why?
Typically the people who buy into manic tops do so based on emotion – they are chasing price action or seeing internet social media posts and buying based on that. They aren’t doing research or buying based on value. As a result, when things turn down they become “weak” hands that will eventually sell, because they never had a solid reason to buy in the first place.
It took four years for Bitcoin to make a new high after its last collapse, because it takes that long for this process to play out. And if something truly has no real fundamental value it may never happen.
To win at the markets you need to be in things that lead on the next rally.
I’ll talk about that step two tomorrow.
Step one, though, if you are in things like crypto collectible coins is up to you.
Will you sell or continue to HODL?
Do you want to be a market winner or remain a LOSR?
That is the question no one in the financial markets wants to ask you, because right now everyone is just catering to the masses and what they want to hear after a market peak, as you are seeing in Bitcoin. That’s what gets more clicks, views, and paying subscribers – and people in crypto want reassurance. They don’t want to look at or think about market trends, but instead be fed predictions for giant price targets for reassurance, as if they are a child.
No one wants to say sell, because no one wants to hear it. It’s a waste of time for professionals to help newbie traders, who really want no real help and saying sell on crypto only makes people mad, which means lower TV ratings, website hits, and video views. The trading space and media is now flooded with hype, because that is what the people are responding to now and the producers and internet algos feed them what they want!
I talked with Dave Skarica about crypto and other things happening in the markets last week. In case you missed it here is the video.
-Mike
