This Week in Barrons – 4-22-2018:
“I tell kids: somebody’s gotta win. Get better ‘cause loosing stinks.” … Yogi Berra
“Get better ‘cause loosing stinks” (the following quotes in italics are by Yogi Berra):
I love baseball season. BL reminded me just how much my brother and I loved toplay baseball every summer. That was back when the biggest stars in the game were Mickey Mantle, Willie Mays, and Yogi Berra. Our father paved the way by buying us gloves, taking us to the ballparks, and always sitting and watching the two of us play. To him it probably was: “Déjà vu all over again.” This was back when you'd leave the house, tell your mother you'd be home for dinner, she’d have no idea where you really were, and was not worried in the least. Maybe there were a couple ‘couch potatoes’ scattered around the neighborhood, but most kids walked or rode their bikes to the schoolyard to play ball. It wasn't organized – just whoever showed up. You already knew who was good and who was bad, but we chose teams anyway because: “It’s tough to make predictions, especially about the future.”
We never played ball in the snow, but when March 1strolled around my brother and I were ready – because tryouts were on April 1st. During games I remember putting on our uniforms, being introduced before the game, and having stands full of people. After all: “No one goes there anymore, it’s too crowded.” If we won – we went to Dairy Queen, but if we lost – we went home, heads down, and dejected.
I know that it’s different now. I know kids play soccer, then T-ball, and yeah everybody still gets a trophy. In my day, you either ‘had the goods’ or you didn’t. Because: ”In theory there is no difference between theory and practice. But in practice – there is.” In my day, either you made the team or you didn't, and the trophy meant everything. You learned that a lot of things in life are: “90% mental and the other half is physical.” With us, striving towards excellence was more important than being a member of any group. After all: “You can observe a lot by just watching.” It was an era when you learned how to handle being bullied because you were not getting bailed out by your parents or school admins.
“The future ain't what it used to be.” I don’t watch a lot of baseball anymore. Like Yogi said: “When I came to a fork in the road, I took it.” My brother took the left fork and went on to briefly play pro-ball, but I took the other one. The lesson in both cases was the same: “It ain’t over – till it’s over. You can ALWAYS come back” Thanks Yogi!
The Market:
I’m betting that not every asset in your portfolio is up 622% year-over-year as Bitcoin is. If you don’t think cryptocurrencies are making a difference, look at the:
- Celebrity Endorsements: Currently celebrities are being used to push hundreds of crypto-currencies. Just ask the people behind Bitcoiin– where the extra "i" stands for: "I can't believe Steven Seagal is the spokesman for this thing." Paris Hilton recently tweeted her support for LydianCoin, and then had to backpedal when the CEO was convicted of domestic battery and assault. Floyd Mayweather endorsed Centra– a company who ‘made-up’ their CEO. Their website image was a Canadian professor who had no idea what the company was. Note to self: If I’m ‘making-up’ a CEO – limit the investor raise to under $10m.
- Stupid Currencies: ‘BunnyTokens’ are positioning themselves as the official crypto-currency of the porn industry. ‘Dentacoin’ can be only used to pay for dentists – and nothing else. ‘Podeum’ managed to raise $11m before vanishing, and replacing their website with the word ‘Penis’. ‘Useless Ethereum’ currently specializes in giving money to strangers to buy television sets. And ‘Whoppercoins’can be used to buy Russian Burger King Whoppers. For a mere 1,700 Whoppercoins ($30) you too can purchase ONE Burger King Whopper hamburger.
- Rampant Thievery: I’m wondering if a crypto-currency is harder or easier to steal than a piggy bank that I can hide under my bed? ANSWER: According to Japan’s Coincheck, the crypto is waaaay easier to steal – because that piggy bank can ONLY be stolen from under my bed, but $500m in crypto can be stolen from anywhere on Earth. In January 2018, Japan’s Coincheck exchange suffered the largest heist in the history = $500m. Lucky for us cryptocurrencies are (cough) ‘super secure’.
- Sylvain Ribes’ report that shows more than $3B of all digital currency trading volume is fabricated by exchanges to mask their illiquidity. Related forms of contentious activity are also occurring such as:
o Rebate trading: Paying commissions to those that create liquidity,
o Wash trading: Buying and selling the same shares, and
o Front-running: Moving buy or sell orders in front of others to gain an economic advantage.
- Tax Season effects:Tom Lee of Fundstrat Global Advisors predicted that U.S. investors owed nearly $25B in capital gains taxes for cryptocurrency holdings. As retailers accepted that they must pay taxes on their fantastic 2017 cryptocurrency gains, many investors were forced to sell additional positions to cover their bills.
- Tim Draper: While VC predictions are by no means prophecy, Tim Draper’s $250k target for Bitcoin in 2022 sets a tone. Tim’s conviction comes from Bitcoin’s ability to revolutionize multiple industry sectors, and to serve as a global currency. According to Tim, there is over $100T of circulating fiat currency, and Bitcoin’s market cap is below $140B.
- Pantera Capital: The blockchain investment fund announced that they believe $6,500 marks the low for this bear market, and that “a wall of institutional money will drive the markets much higher”. Pantera sees a Bitcoin price above $20k within 12 months as “highly likely”, and the fund has only made 4 crypto-currency trade recommendations in 7 years.
- ICO Demand: Regulatory hurdles will make it harder for companies to obtain ICO funding, and that may be good for the market’s health moving forward. For 2018, we’ve seen over $1B in monthly funding volume.
- ICO Correlations: As more ICOs were issued on Ethereum, the price of ETH continued to rise. As the market pulled back in mid-January, projects that previously raised capital in ETH were prompted to liquidate their positions and lock in funding in USD. While recent selling pressure contributed to ETH’s downward spiral, an increase in ICO funding could bring about positive correlations in price as the year progresses.
- Don't Forget about Jeff Bezos: Amazon’s newly approved patent proposes a streaming data marketplace where Bitcoin addresses are combined with shipping addresses. Telecom providers could then correlate transaction IP addresses to countries of origin, and governments who could correlate tax data to identify purchasers. This isn’t the first timeAmazon filed a patent that sought to monetize user data. Their last fillings put them right up there with Google and Facebook:
o A system for listening into all in-home conversations for keywords that would allow statements to be stored and converted into targeted ads.
o A system for identifying speakers in a conversation and building interest profiles on them.
o A system for inserting paid content into responses allowing requests such as: “Restaurants near me” to deliver those that paid for Amazon ads first.
Globally the financial system is slowing. Just like a junkie, without ever larger injections of stimulus, the system will go into withdrawal. Each market level we attain is NOT built on organic sales, but rather cheap money allowing for stock buy backs, and on Central Banks buying futures and equities. But because the market has become such an economic force (as so many loans and derivatives are co-joined to it as collateral) any serious downdraft would end up being worse than 2008. So, globally everyone will do all they can to prevent this from happening. My question is whether at some point the globalist elites actually pull the plug and create a massive crash? Or, is there a point where they can no longer manipulate the market?
Last week our markets could not hold their respective 50-day moving averages. Combine that with the S&P’s inability to exceed its downtrend resistance line – and you have a recipe for any rally falling apart. After all, the world is slowing – interest rates are rising – and the yield curve is flattening. These facts were ignored early in the week when the market gapped higher (above all of the 50-day moving averages) but without any volume confirmation – it just faded back down. It’s significant that on big market ‘down days’ the trading volume exceeds the volume on big ‘up days’ by 44%. That suggests to me that the smart money is doing the selling, and the latecomers are picking up the pieces.
We could easily be on a track to reach down to the March / April lows. If those lows fail to hold, we could be looking at a much lower market. Periods of chop almost always signal a turning point, and we've been in massive chop for 3 months. The tide appears to be turning, and if that's true, there's no telling how far this market could fall. But for as much as I think we've seen the highs in this market, there's no rule that says we can't chop in a sideways pattern for a long time. The new plan might just be to keep it from crashing.
The 10-year Treasuries are now around 2.95%, and the heavy dividend paying stocks are becoming the first to be impacted. After all, why go out and purchase a volatile asset like Verizon that could may a 4% dividend – when you can purchase a secure T-bill that pays 3%. The heavy dividend payers were once thought of as ‘low-beta’ (lightly moving) stocks, but due to higher interest rates – they are seeing increased volatility. I’m expecting increased volatility over the next several weeks. In fact, this marketplace has become quite ‘diabolical’. By that I mean, the market will display wild sell side activity – followed by 2 weeks of calm – immediately followed by additional downside activity. For the past 8 years you could virtually buy every dip. Moving forward, I think you’re going to need some real ‘trading chops’ because the market is not going to ‘bail you out’ of every mistaken, fat-fingered buy that hits your tape. In the larger picture, we’ve reached the top of the downward channel and could be headed back down over these next weeks. I’m first expecting us to move higher into 2680 on the SPX prior to heading lower, and by lower I mean down into 2626 and potentially 2575.
The financials – in a rising interest rate environment with tax reform – should be performing well. But I’m hearing a lot of rumblings surrounding: (a) higher bankruptcy rates, (b) higher loan default rates, and (c) much higher sub-prime loan defaults. There will be some big earnings out this week: Microsoft (MSFT), Facebook (FB), Apple (AAPL), Google (GOOGL), and Amazon (AMZN). As these companies continue to beat expectations, the overwhelming narrative is going to become louder surrounding how much and how often the FED will need to raise rates because the economy is doing so well. Therefore, better earnings could lead to increased sell-side activity in the bonds, which could then cause fear to hit the financials and the broader markets this coming week.
We are just about dead center between the February bounce high, and the late March low; therefore, we have resistance above, and support below. So, while you can snag some great profits going short if you're nimble, it might be just a bit premature to go short and hold it for the long term. My guess is that with Friday's failure, we are going to see a lower market this week. But whether you go long or short, do NOT overstay your welcome in this atmosphere – because the reversals are too quick and too common. Happy Earth Day!
Top Equity Recommendations:
Marijuana stocks (HODL):
- Aurora (ACBFF),
- Cannabis Wheaton (CBWTF), and
- Canntrust Holdings (CNTTF).
Options:
- Microsoft (MSFT) – long calls into April 25th(earnings),
- Facebook (FB) – long calls into April 25thearnings,
- Gold (GLD) – long calls into December, 2018,
- HYG is the high-yield ETF for junk debt. If interest rates begin to move higher, then HYG will move to the downside fairly significantly, so either:
BUY the May 18th+85 / -83 Put-Debit Spread for $0.26, or
SELL the May 18th-85 / +86 Call-Credit Spread for $0.71.
Top Crypto Recommendations:
Cryptocurrencies (in general) are still down 40% year-to-date, butfunds that trade in arbitrage strategies have gained as much as 30% in the first quarter. This week Bitcoin accelerated over a threshold that (at least for the short-term) is showing a crypto-bottoming effect.
BTC/USD: Bitcoin broke above its 50-day moving average, and although it lacked the volume that I’d like – it’s still a cautiously bullish signal. The next upside target is $9,400, and if that level is crossed then all eyes will be on $10,000. If prices fail to hold above $8,600, it will be a bearish sign and prices can fall back to the first support level of $7,900.
ETH/USD: Ethereum also broke above its 50-day moving average on April 19 on nice volume and is leaning toward the $730 level. It’s moving with Bitcoin, and I recommend any fresh long positions to enter around the $570 area.
BCH/USD: Bitcoin Cash zoomed past it’s 50-day and quickly touched my first target objective of $1,114. If bullish sentiment continues, a fresh entry point would be the $1,000 level, and rally into $1,300 and then $1,600.
XRP/USD: Ripple easily crossed above my first target of $0.83. There is some small resistance at $0.9, but nothing major until the $1.08 level. The way it has rallied over the past 3 days shows me that the buyers are back. The moving averages are also close to a bullish crossover, which is another big plus.
XLM/USD: Stellar is holding support at the $0.36 level. The break out makes sense to continue toward $0.47. The moving averages have completed a bullish crossover, but this is unlikely to be a one-way move into new highs.
LTC/USD: Litecoin has found buying support at $141. It is currently attempting to break out of its 50-day moving average, and if successful could rally into $178. The logical stop loss for the trade is at $127, which doesn’t offer a good risk vs reward to me – so I’m sitting this one out.
NEO/USD: NEO hasfinally broken out of the 50-day SMA, but it will face stiff resistance at the $80 mark. If NEO can break above $80, it will become very bullish because the failure of a bearish pattern is a positive sign. After breaking out of the downtrend line, there is minor resistance at $92-$94, but could easily open the door to $140. So watch NEO above $80.
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Please be safe out there!
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