TVO Market Barometer 12-22: Bitcoin crash… are stocks next?

There are lots of things to talk about around the holiday dinner table, but this year investing and the stock market will surely be at the top of the list. And then there’s Bitcoin. Whenever I’m asked what I think about Bitcoin, my usual response is “I don’t.” But now after hearing that the monster cryptocurrency recently (and not surprisingly) just dropped off the cliff, I might encourage some would-be investors to read up on Taleb or Mandelbrot (or any book on Technical Analysis for that matter) before refinancing their house to go all-in and buy the dip on this one.

Some folks say that the stock market is in a similar boat, and the crash is just around the corner. Well, if they took a look at volume (just like those Bitcoin folks may want to look at a chart once in a while), they’d see a market almost completely devoid of distribution. In fact, the last across-the-board distribution day was way back in September. Unless we start racking up more of those, any sizable drop we get will likely be just another shakeout to sweep the stops, trap the bears and then ultimately move the market higher.

The big question is, though, how much of a pullback can you stomach and how do you know when to buy back in? For Bitcoin it’s hard to know, but as far as equities, what we do know is that TVO, our volume oscillator, has reversed direction towards negative values. When volume shifts, prices soon follow suit. We just have to wait and see where volume goes next.

With all of our systems now in cash, our YTD return for 2017 is now just over +27%. Many funds with similar returns have already started locking in their gains, but don’t expect a Bitcoin “1999-like” exodus for the stock market. For US equities, as long as TVO stays above zero, the party still has a ways to go. Happy Holidays! -MD

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