Bitcoin (BTC) is working in this market. But I’m not buying right now. My charts show it’s still in no man’s land.
It’s holding up well. And this quiet price action while the stock market is crashing is encouraging.
But I have a level in mind for BTC. Just like I have a broader signal I’m looking for before I start buying again.
And I want to go back to the old school today to share it with you…
You’ll See This Sign
BTC was up 0.7% on Thursday while the S&P 500 was down 4.8%. On Friday it gained 0.9% as stocks were selling off another 6%.
We’re always looking for relative strength. It’s the most basic divergence there is.
We’ll trade it wherever we can find it. And we’re happy when the assets we own show relative strength when markets are crashing.
I need to see more from Bitcoin. And I need to see more from the broader market.
Being back in Miami, where I grew up and where I have a lot of family, always makes me feel nostalgic.
So I want to share a chart I’ve kept with me for a long, long time.
We’re looking at the percentage of stocks on the New York Stock Exchange (NYSE) that are above their 200-day moving average:
That’s the same Stockcharts.com chart I originally annotated a handful of cycles ago. That’s how long and how many cycles I’ve been doing this.
The idea here is to buy on the way back up.
We are NOT interested in buying the indexes on their way down below 20% of constituents above their 200-day moving average.
I’ve been having this debate with some of the world’s top portfolio managers and fund strategists for over the past two decades.
Here’s what I do.
When the percentage of stocks on the NYSE above their 200-day moving average falls below 15% but then rises back above the 20% mark, I like to put material wealth to work.
The key is the “falls below … rises above” part. This, to me, is the best setup. It’s about loading up on the way back above 20%.
It’s not perfect, especially when volatility is spiking like it is right now. But it’s a great rule of thumb. And it’s at the top of my mind right now.
I’m specifically interested in the NYSE listed stocks, not just the S&P 500.
I really like the diversity of the NYSE. It’s broad and deep. There’s a lot of international exposure as well as a solid composition of smaller-cap stocks.
The S&P 500 is just a bunch of humongous American companies. For purposes of this exercise, we want to focus on the NYSE listings.
Go get ‘em… when we see the right sign.
Golden Rules
I was in Miami the first weekend in March, and I made a BTC buy.
I’m in Miami the first weekend in April, and all of a sudden the Treasury secretary is saying Bitcoin is a “store of value” and comparing it to Gold.
Just like stocks and commodities, price is the only thing that pays in the cryptocurrency market, too.
And I do think Bitcoin’s relative strength right now is a sign of even bigger things to come.
Cryptocurrency markets are open 24 hours, seven days a week.
BTC traded as high as $84,207 on Saturday. It was trading at $81,830 as of 1:00 pm ET on Sunday.
It’s probably a little too early to be drawing big lessons about this crash. It might not even be over yet.
But for those two days, BTC was steady while everything else was crashing.
It stored value.
We’ll be looking to buy again – stocks and BTC – when we see the signs we want to see.
You with me?
Stay sharp,
JC Parets, CMT
Founder, TrendLabs