This Week in Barrons – 2-4-2018:
Thoughts:
Cryptocurrencies (to many) are a lot like
the Kardashians: we have all heard of them, but we’re not really sure why. They’re overexposed by the media, but somehow
shrouded in mystery. Here are this
week’s Top 10 Crypto Questions:
#10 –
Is there a new crypto ETF coming? Currently
there is the Bitcoin Investment Trust (GBTC) that is somewhat ‘weirdly’ priced
and has excessive fees. Last week
Harvest Portfolios filed with regulators to introduce an ETF that tracks blockchain
technologies. It has a management fee of
0.65% and seeks to replicate the performance of the Harvest Blockchain
Technologies Index. It begins trading
next week on the Toronto Exchange under the ticker: HBLK.
#9 –
What’s the latest Bitcoin projection? Ran Neuner, the host of CNBC’s Cryptotrader, said
last week that Bitcoin will hit $50,000 by the end of 2018.
#8 –
How is Ripple (XRP) doing since it’s big fall? Ripple has landed one of its largest clients –
the Santander Group, and announced a mobile app powered by the company’s
distributed ledger. The app will
be rolled out in Spain, Brazil, the U.K., and Poland. Customers will be
able to use its digital wallet, its same-day cross-border payments feature, and
its personal finance manager to solve any person-to-person payment issues.
#7 –
What is UNICEF doing with Ethereum?
UNICEF has launched Game Chaingers in an effort to bring together gamers
and crypto-enthusiasts from across the globe to ‘mine’ Ethereum for UNICEF. Joining the cause is as easy as going to a
website and providing a few details about your system so that they can
configure and install their mining software.
#6 –
Is Circle acquiring crypto exchange
Poloniex: According to a report on Modern Consensus, Circle (a multi-currency
money-sending app) is in talks to acquire Poloniex – a major US-based
cryptocurrency exchange.
#5 – What is Amara’s Law? Amara’s Law is shown below: “We tend to overestimate the
effect of a technology in the short run and underestimate the effect in the
long run.”
The
above is a graphical depiction of a common
pattern that arises with each new technology. It is often thought that
the growth of Bitcoin/Blockchain adoption is modeled after the above
technological adoption curve.
#4 –
What happened last week to cause the crypto-market to push the panic button? It’s
been a rough couple of weeks in crypto-land.
Bitcoin dropped below $9,000, and total crypto-market
capitalization is currently hovering near $400B – less than half of its Jan. 7th
$830B valuation. Lately, a negative
stance against Bitcoin was taken by India’s Finance Minister. During an annual budget speech, Arun Jaitley
noted that Bitcoin is currently not recognized as legal tender, and also
emphasized that India “will take all
measures to eliminate the use of crypto-assets in financing illegitimate
activities or as part of the payment system.” However,
nowhere in Jaitley’s statement did he say that Bitcoin is banned in the country,
and in fact its use as an investment is still entirely legal.
#3 – Should I buy the crypto-dip? Nobody can tell you that the bottom is
in, but averaging your investment downward is a good way to reduce
your average cost of entry – if the crypto-marketplace continues to fall.
#2 –
What’s up with Stellar and Stripe? Stellar is the cryptocurrency founded by Ripple
co-founder Jed McCaleb, and Stripe is the Silicon Valley payment processor that
incubated Stellar. Stripe just announced
that it would discontinue support for Bitcoin due to: lengthy transaction
times, increasing transaction failure rates, and growing fees. Stellar announced that Mobius Network raised
$39m in an initial coin offering built
on top of the Stellar network. That
was the largest token sale on the Stellar network to date. Mobius chose
Stellar over Ethereum because ETH was too:
"slow, expensive and insecure.”
#1 – Will the U.S. begin to
regulate cryptos? U.S. regulators made it clear that they are keeping close
tabs on cryptocurrencies. Securities and Exchange Commission chairman Jay
Clayton and Christopher Giancarlo (his counterpart at the Commodity Futures and
Trading Commission) said they are devoting a significant portion of their
resources to monitoring the industry.
Separately, Clayton took lawyers to task who have been advising ICOs that push
the legal envelope. "I have
instructed the SEC staff to be on high alert for approaches to ICOs that may be
contrary to the spirit of our securities laws and the professional obligations
of the U.S. securities bar," he said, a bit ominously. Clayton also indicated that his agency is
taking a hard look at "Blockchain-R-Us"
companies that change their names to something blockchain-related to juice
their stock prices. And the International Monetary Fund (IMF) called for international co-operation
among regulators to tackle the problems it sees cryptocurrency
creating: money laundering, terrorist financing, tax evasion, fraud, and investor
losses. Because we all know how well governments co-operate and co-ordinate.
The Market:
“I bought the
dip – why didn’t it go back up?”
So, what happened this week that caused a 1,000 point pull-back in the
DOW? Was it:
-
The fear of rising interest rates,
-
The President’s State of the Union address – 3rd
longest in history,
-
Trump’s ‘releasing the Kracken’ surrounding the
Republican memo,
-
Hints that the European Central Bank might
actually begin to taper,
-
$12B worth of funds that had to be rebalanced,
-
The 10-year Treasury bond
moving to 2.8%,
-
The personal savings rate dropping
to 2005 levels, while credit card debt soars higher,
-
The FED telling Wells Fargo
to cut 4 board members, and not allowing the bank’s assets to surpass
2017 levels until it fixes its problems,
-
A lack of SHORTS in the marketplace – that
left no one buying stocks on the way down; thereby, producing a larger than expected
downturn,
-
Expanded market inefficiency – producing a
dramatic uptick in volatility,
-
Last month’s wage growth that exceeded all expectations – giving the
FED reason to hike interest rates faster and higher,
-
A much weaker dollar. In a
falling dollar / rising interest rate environment – you almost have a perfect
storm. If you’re another country, why would
you want to hold U.S. Treasuries? As the dollar declines, bonds get
annihilated, and interest rates rise in a hurry – impacting everything from
homebuilders to automakers.
-
OR was it everything added together
and shaken (not stirred) that gave us a pretty soggy week in
market-land?
I’ve seen it happen too
many times where: (a) longs overstay their hands, (b) claiming they will never
sell, and (c) then end up puking out their positions right where smart money is
buying back in at the lows. Traders call
it the ‘porcelain alter’ trade. The
graphs below compare the past 3 months in 2017-2018 and the 2008 financial
crisis/crash. By comparing the severity
of the rise to the panic associated with the 2008 financial crisis - your only
conclusions are that: (a) we have risen much faster than we should have, and (b)
we should have a lot further to fall going forward.
After four weeks of strong gains, U.S. stocks and the
three major benchmarks fell sharply last week. The DOW tumbled by over 1,000 points to 25,521
– putting in its worst weekly performance in 2 years. All 11 S&P sectors fell on the week, and
at least 36.2% of all S&P 500 stocks fell by at least 5%. The NASDAQ also was down over 3.5% last week. U.S. stocks lost almost $1T, and over $511B on
Friday alone. Cincidentally, the sharp fall of U.S. stocks came as the Labor
Department presented a stronger than expected January employment report. The unemployment rate remained at 4.1% - the lowest
since 2000.
Despite the severity of the drop, Friday’s selling
was orderly. The jobs report showed that
the average hourly wage grew by 2.9% year-over-year – the largest increase
since June 2009. Investors worried that a big wage growth number might be
the biggest risk to the stock market rally – because it would give the FED more
reason to raise rates. It was inevitable that inflation worries were
going to resurface, and that further caused a rise in bond yields with the 10-year
Treasury hitting a four-year high on Friday.
Last week also showed us a new face in
healthcare. On Tuesday, three U.S.
corporate giants announced the formation of a new healthcare company that is “free from profit-making incentives and
constraints.” Amazon’s Jeff
Bezos, Berkshire Hathaway’s Warren Buffet, and JP Morgan’s Jamie Dimon are
determined to form the world's largest, for-profit healthcare corporation
focused on transforming the failing U.S. health care system. Stocks of the leading pharma, drug store, and
insurance companies tanked after the announcement.
-
CVS and Walgreens
declined by 4%,
-
Express Scripts was down
by 7%,
-
United Health, Aetna,
and Humana were down by 3%, and
-
Cigna and Anthem fell by
over 5%.
This
is only the beginning of major changes for the insurance business, and the
start of a restructuring for the entire healthcare industry.
Last
week the North
American cannabis sector(s) experienced a dip in investor confidence which led
to a heavy decline in the ‘weed’ stocks.
The North America Marijuana Index posted a 27.2% decline due largely
to poor performance among Canadian stocks. Investors in the Canadian market found it difficult
to financially comprehend Aphria’s
(APHQF) $826m bid to acquire Nuuvera. First,
Nuuvera only became a public company three weeks ago. Second, it has yet to secure a license from
Health Canada to grow and sell cannabis. And third, the company’s only significant
assets are in Germany, Italy, and Spain.
The proposed merger seems unjustified, but is a sign that Canada’s major
cannabis companies are looking at international markets for opportunities as
the domestic market prepares for the marijuana legalization this coming
summer. The wave of panic selling that happened on Friday means that
the investor high covering the Canadian marijuana industry has dissipated for
the time being.
At a macro
level, in 2008 we would have considered last week – just another week. However, this market is showing signs of moving
from an 8-year period of efficiency to a period of inefficiency – as demonstrated
by January’s continued weekly index movements of over one standard deviation. These movements are (in part) caused by the
severe downward movement in the U.S. dollar – which ‘crushed’ the bond market
and in turn pressured the financial stocks.
If the 10-year Treasury bond remains above 2.8%, we should see continued
pressure on financials which will prevent the overall market from moving
higher. The S&P is currently sitting
at 2756 – with its ‘daily mean’ all the way down at 2439. This means that if we simply ‘revert to the
mean’ – a drop of an additional 300 S&P points is in the cards. That is exactly what happened in 2015 when
(for a month) we dropped over 200 points.
If that is the case, we will continue to see increased volatility for
the foreseeable future. The volatility
index (VIX) just caught its stride on Friday closing above 16, but it
really gets interesting (and a little panicky) above 20.
At the micro
level, any gap-up on Monday will be aggressively sold into by traders. If (however) Monday brings us more movement
to the downside, this will invite capitulation – followed by a soft buying
effort higher. Next week could easily
show us wild short-covering rallies to the upside. After all, we just lost 1000 DOW points in
one week, and nothing goes straight up or straight down. If this bounce does not reclaim at least half
of what we lost, that’s a bad sign and means when we roll-back over we will be
taking out Friday’s low.
If I were to ‘guess’, I think that there is more downside to come, but not until we
experience an early week bounce. This is
the market’s first 3% pullback since what feels like forever, and the technicals
are suggesting the pain may not be over. I also think that the U.S. Dollar Index is ready
for a bounce higher. But I don’t think
that volatility will subside all that much, and that is why I see additional
pressure on the markets at the end of the week – especially with another
government shutdown looming.
As a TIP, remember to reduce your
trading position size by 1/3 – when you’re trading to the downside. Markets go down faster than they go up.
Tips:
Top
Equity Recommendations:
-
Marijuana & Energy stocks:
o Aurora
(ACBFF = $10.81) – higher w/ earnings on Feb 14th,
o GW
Pharmaceuticals (GWPH = $138.55) – higher w/ earnings on Feb 8th,
o Canntrust
Holdings (CNTTF = $9.35),
o GAStar
Exploration (GST = $1.30),
-
Options:
o BIDU
($233.17) - higher w/ earnings on: Feb 22nd,
o Costco
(COST = $190.99) – looking for a move into $205,
o Deer
(DE = $164.96) – not liking stock movement,
o Disney
(DIS = $108.70) – looking for higher w/ earnings on Feb 6th,
o First
Solar (FSLR = $66.44) – moved into an ‘over-sold’ area / trying to be patient w/
earnings on Feb 21st,
o Lululemon
(LULU = $78.62) – holding above the 21-EMA / momentum is still rolling higher,
o Micron
(MU = $40.82) – closed below the 100-EMA / watching until Wednesday.
o Wynn
(WYNN = $166.56) – over $170 by Feb 16
Top
Crypto Recommendations:
-
Ethereum (ETH),
-
Nano (XRB),
-
Lumen / Stellar (XLM),
-
NEO, and
-
SiaCoin (SC)
The total crypto-market cap dropped by more
than $100B last week, and for the first time in 2018, the crypto-market
cap landed below $400B. The reasons
behind the crypto-panic are: (a) increased regulations, (b) hacking, and
(c) a crackdown by various governments. Additionally, the last leg of the rally looked
more like FOMO (fear of missing out) than reality. But when the
mainstream media highlights negative news – investor sentiment is affected and often
retail traders panic and dump their positions out of FUD (fear, uncertainty,
and doubt). I consider this pullback a buying opportunity; however, all
cryptos are not created equal.
BTC/USD ($9,190):
Bitcoin is in a firm ‘bear’ grip.
It has declined about 55% from its high, and has retraced almost 78.6%
of its latest rally leg. In 2017, the
RSI indicator fell into the oversold level on three occasions, and all of them
were buying opportunities. Aggressive
traders can look to buy in the current zone and hold at least to the overhead
resistance of $10,700. I anticipate additional selling between $10,700 and
$11,300 (the 20-day EMA). The next leg
down will confirm a bottom if it doesn’t break the most recent low of $8,000. If the low breaks, the downtrend can extend into
the $6,000 level. Therefore, long-term traders should wait for a couple of days
before buying.
ETH/USD ($964): Ethereum could not escape the panic selling that
gripped the crypto market. On Friday ETH broke below its 50-day SMA, and
found support around $768, just below its previous panic low of $770. It
should face resistance at the $1,025 level.
So, the next buying zone should be either (a) above $1,025 or down between
$770 and $820.
XRP/USD ($0.95): Ripple has not fared well in the current
decline. At Friday’s low of $0.61, it
had declined 81.5% from its lifetime high of $3.317. If $0.61 breaks, a
fall to $0.24 is likely. Make sure $0.61
holds, before taking any additional investment into Ripple.
XLM/USD ($0.44): Stellar has broken below its 50-day EMA, at one point broke below support
at $0.41 and even touched its final support level of $0.296. Strong buying at that level helped XLM regain
critical support at $0.41. If that level
holds, we may see a range bound action for the next few days. Steller
will likely become a buy once it breaks out of the upper end of the range at $0.64.
NEO/USD ($123): NEO fell close to its critical support
level of $93.53 which resulted in strong buying. The $132 level will act
as resistance, but NEO is one of the stronger cryptos out there as it has
remained above it’s 50-day EMA during this contraction. I’m looking to buy NEO on a fall to the $105
level.
Note: Bottoms are not formed in a single day.
After such a steep decline, we are
likely to see a pullback and a few days of volatile price action. Therefore, long-term traders should wait for a
successful retest of the lows before buying.
To follow me on
StockTwits.com to get my daily thoughts and trades – my handle is:
taylorpamm.
Please be safe out there!
Disclaimer:
Expressed thoughts proffered within the BARRONS REPORT, a Private and
free weekly economic newsletter, are those of noted entrepreneur, professor and
author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your subscription
by visiting:
Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any
reproductions, including when and where copy will be reproduced. You may use in
complete form or, if quoting in brief, reference <http://rfcfinancialnews.blogspot.com/>.
If you'd like to view RF's actual stock trades - and see more of his
thoughts - please feel free to sign up as a StockTwits follower - "taylorpamm" is the handle.
If you'd like to see RF in action - teaching people about investing -
please feel free to view the TED talk that he gave on Fearless Investing:
Sales = https://youtu.be/blKw0zb6SZk
To unsubscribe please refer to the bottom of the email.
Views expressed are provided for information purposes only and should
not be construed in any way as an offer, an endorsement, or inducement to
invest and is not in any way a testimony of, or associated with Mr.
Culbertson's other firms or associations. Mr. Culbertson and related parties are
not registered and licensed brokers. This
message may contain information that is confidential or privileged and is
intended only for the individual or entity named above and does not constitute
an offer for or advice about any alternative investment product. Such advice
can only be made when accompanied by a prospectus or similar offering
document. Please make sure
to review important disclosures at the end of each article.
Note: Joining BARRONS REPORT is not an offering for any investment. It
represents only the opinions of RF Culbertson and Associates.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS
AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING. WHEN CONSIDERING
ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER
VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE
INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT
TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES,
AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN
ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can be volatile. An investor could
lose all or a substantial amount of his or her investment. Often, alternative
investment fund and account managers have total trading authority over their
funds or accounts; the use of a single advisor applying generally similar
trading programs could mean lack of diversification and, consequently, higher
risk. There is often no secondary market for an investor's interest in
alternative investments, and none is expected to develop.
All material presented herein is believed to be reliable but we cannot
attest to its accuracy. Opinions expressed in these reports may change without
prior notice. Culbertson and/or the staff may or may not have investments in
any funds cited above.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.
R.F. Culbertson
