• Is ‘crypto mania’ over? Let’s examine the evidence…
• What to look for when a hot sector finally shows signs of weakness…
• PLUS — the 2 bearish indicators I see now in one particular crypto stock…

Hey, Evolver.

Happy Veterans Day to our military and their families, who sacrifice so much to keep our country safe and strong. It’s because of them that we have the ability to trade freely in the markets at all. 

Now let’s talk crypto. It’s time to draw a line in the sand — I’m betting against the crypto mania that’s happening in the markets.

Cryptocurrency stocks have had an INSANE month riding the coattails of bitcoin (BTC) and ethereum (ETH).

But what goes up must come down. Here’s why I think now might be the time for crypto stocks to dip…

No-Dip November? Think Again…

It’s not a matter of if crypto stocks will tank, it’s a matter of when…

I think there’s simply no rhyme or reason to what’s going on with cryptocurrency and its related stocks like Coinbase Global Inc. (NASDAQ: COIN), Marathon Digital Holdings Inc. (NASDAQ: MARA), and Riot Blockchain Inc. (NASDAQ: RIOT).

These speculative tickers rally based on hope, exuberance, and FOMO. Then they crater back to earth in predictable cycles (just like every other momentum stock).

It’s just getting started, but so far, November has been unbelievably bullish for crypto stocks…

On a month-to-date basis — MARA is up 33% and RIOT is up 44% at the time of this writing. (Remember: it’s only the 11th!)

Let’s challenge my idea: Could these charts continue to rip higher? Sure. But the risk/reward here is much better going short than going long.

Plus, all it takes is one big negative catalyst to send crypto stocks into a tailspin. And I think we might have gotten that news earlier this week…

Coinbase Misses Earnings

(COIN 2-month daily chart, courtesy of StocksToTrade.com)

COIN is the big kahuna of crypto stocks. With a market cap of $73 billion, COIN towers over the likes of MARA and RIOT.

On Tuesday (after the bell), COIN reported worse-than-expected Q3 revenue, sending the stock plummeting as much as 10% on Wednesday. 

I viewed Wednesday’s price action kind of like a first red day for the entire crypto stock sector. 

Look at the chart above. Notice how overextended it was before Wednesday. Then, look at the deep red volume when the chart finally cracked. These are both very bearish indicators.

It means there could be a lot of downside left in the chart. I expect to see more blood in the streets in the days to come…

I haven’t alerted any of my recent crypto stock trades because I don’t want you to chase these plays. This is a super-risky position that I wouldn’t recommend to most.

But I’ll say this — I’ve been trading (or holding) puts on all three of the stocks I mentioned today. 

And as I’m writing this, I just cleared a put trade on RIOT! (Stay tuned for a complete trade breakdown next week!)

Lesson Summary

• When a major sector is seemingly unstoppable, it usually takes a major negative catalyst to break the momentum…
• I think COIN’s terrible Q3 earnings report could be the negative catalyst that sends overextended crypto stocks back to earth…
• I have puts across the entire sector, but I don’t want Evolvers to chase this trade…

Conclusion

There’s no way to know for sure, but I think this could be the beginning of a major downside move in crypto stocks.

The sector is overextended, and COIN’s weak earnings are causing the sellers to come out in droves. Let’s see if the dumping continues.

It’s a risky trade, but one that’s already paid off nicely for me (more on that next week)…