Happy Holidays, Evolvers!
During our webinar on Monday, I speculated about the possibility of the market bouncing mid-week.
Sure enough, after five red days in a row, stocks surged on Tuesday and Wednesday, giving the market some much-needed relief.
But I’m still hesitant to go long anything in this environment…
My biggest position is still in ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) puts (but more on that later)…
Stocks never go straight in any one direction. They’re seeing a small rally, but the overall trend since ‘Fed Week’ has been down.
Don’t fight the trend. And don’t force trades.
I think a lot of people tend to overtrade toward the end of the year (especially when stocks start rallying a bit) … but this is a mistake.
I want every Evolver to have discipline here. See the end of the year out without taking any subpar trades.
But for now, it’s time for our Friday Q&A! Keep reading to hear my answers to your questions…
“Can you explain the trade thesis behind your BITO puts position?”
I’m betting that the crypto sector will see a significant ‘Black Swan’ event in the next three months.
Specifically, I have my eyes on two potential negative catalysts:
- The potential insolvency of Binance, one of two remaining large crypto exchanges.
- The potential implosion of Silvergate Capital Corp. (NYSE: SI) – a bank central to the blockchain ecosystem with 90% of its assets in cryptocurrency.
Even if neither of these events occurs, I still think Bitcoin (BTC) is headed lower in the near term.
It’s all about sentiment … and it can’t get much worse in the crypto sector.
First, it was Do Kwon’s LUNA scandal…
Then, Sam Bankman-Fried’s FTX fraud charges…
What’s next? It seems like every month, there’s a new piece of dirt to uncover in the crypto space.
Additionally, I think a lot of the run-up in crypto last year was caused by leveraged trading.
This year, much of that leverage has come out of the system … but I still think there’s more fluff to remove from the most speculative asset in modern history.
I keep asking myself … why are people still paying nearly $17,000 for a single Bitcoin?
I’ll stay short until I can answer that question, or unless I see a positive catalyst forming.
“Do you think next year will be positive or negative for the SPY?”
The answer is … I don’t know. No one does.
On the one hand, with the SPY down nearly 20% in 2022, it would be a welcome sight to have a green year in 2023.
Since it seemed like everyone loved buying overvalued stocks in 2020 and 2021, they should really love buying them at 2022 prices … right?
Well, we haven’t really seen that yet. I think that’s telling of how negative the sentiment is around stocks right now.
And on the other hand, the headwinds for the markets remain strong moving forward.
The effect of high interest rates, corporate layoffs, earnings contractions, record-high inflation … we don’t know how ‘priced in’ (or not) any of these factors are yet.
I tend to lean toward them not being completely priced in, which would imply further downside in 2023.
I know this isn’t what most of you want to hear, but that’s how I see it. And I want you to be prepared for any possible outcome.
Regardless, this market is way too volatile for long-term predictions. The price action can shift on a dime, as we’ve seen time and time again in 2022.
That’s why I’ll continue to take things day-by-day, week-by-week … staying nimble and adjusting my strategy when the market calls for it.
I suggest you do the same.
Have a great weekend and a happy holiday, Evolvers!
Over the next few days, don’t stress about the markets at all.
Just enjoy the time off with your family and friends and I’ll talk to you all next week!