Morning Market Thoughts

Good morning. Just a quick note this morning. As I type this, Bitcoin has pushed through $11,000. I never thought I’d see another bubble like the Internet Bubble back in 2000. But, to paraphrase Yogi Berra, this is deja vu all over again. While each bubble is different, but one thing is the same. There is a pervasive feeling that “this time IS different.” But it’s really not — because bubbles are a consequence of human psychology put into action.

This move in Bitcoin is unique in that it’s an entirely new asset class that the masses are just now discovering. It’s not the stock market. It’s not real estate. It’s not tulip bulbs. This is truly a phenomenon. So this definitely IS different, right?

I don’t think so — because we’re not looking at the asset, we’re looking at the crowd psychology that is dictating prices. As with all bubbles, no one knows exactly when they will pop except the liars and fools. (Now BTC is at $11,485)

I’ve discussed the various reasons for the enthusiasm about cryptocurrencies (no governmental regulation, the equivalent of an “offshore account”, finite supply, ease of use, etc). But it’s still a bubble. The bubble may pop at $11,485 (It’s trading a bit lower now), or it may pop at $111,485. No one truly knows. Don’t become a “believer”, an “advocate”, or a “fan”, of cryptocurrencies. During the Internet Bubble, there were plenty of trading fans. Plenty of stock fans. I remember one guy who I taught a few trading classes with who would walk around saying, “Oh, I know Dell ($DELL). I know that that stock and I’m making a fortune on it. Oh yeah, I know Dell.” His big strategy? Selling at-the-money puts on the stock. LOTS of puts. He was a genius (in his own mind) until stocks crashed and took Dell with them. His broker had to liquidate his account because he couldn’t meet a margin call. Boom! The genius was the new class dunce.

Don’t be that guy. As the price moves higher in any bubble, the crowd gets increasingly enthusiastic. That’s what inflates the bubble.

I’ve got some serious stops placed at $11,195. I’ve been enjoying the ride and believe that Bitcoin will ultimately move much higher. But I’m not a fan. I’m just a trader who sees an opportunity. I’m not selling into strength. The market is very very liquid. I’m just keeping stops on my trades and embracing the truth that I won’t get out at the top.

There are a lot of lessons to be learned from this bubble. Most of you probably weren’t trading 20 years ago, so you didn’t experience the ether surrounding the stock market. This is just like that. The only thing missing is Maria Bartiromo standing on the floor of the NYSE shrieking about buy orders “in size.”

That’s all.


Don’t forget about today’s training session at 9 am PT, Noon ET.

Market Update

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