Pure Signal. Zero Noise.
Investors,
This is the most important chart and signal I created all week:
This is the price of Bitcoin going back to Nov.’22, with the 120-day Williams%R Oscillator in the bottom panel of the chart.
Specifically, I’m highlighting each case where the 120-day W%R indicator makes a full oscillation from the lower-bound (oversold) to the upper-bound (overbought), as I view each of these as positive momentum thrusts over the 120-day window.
Why 120 days?
It’s roughly 1/3rd of a year, so it gives a strong indication of medium-term dynamics.
As we can see, this signal is both rare & highly effective:
In the January 14, 2023 case, Bitcoin gained +48% exactly 3 months later.
In the October 23, 2023 case, Bitcoin gained +123% within 6 months.
Said in a slightly differently manner, returns since each of these signals are stellar:
Bitcoin return since January 14, 2023: +226.8%
Bitcoin return since October 23, 2023: +106.9%
Hey, that sounds pretty damn good to me.
With Bitcoin currently trading at its highest prices since July 2024, investors are regaining confidence in the potential for continued upside, particularly with stocks at all-time highs. In turn, this has created massive tailwinds for MicroStrategy (and other Bitcoin-related equities).
MicroStrategy ($MSTR) has produced massive returns, closing at new highs on Friday, and the stock is now up +241.76% YTD. Yes, if you bought MSTR at the close on December 29th, 2023 (the final trading day of 2023), you’re up 3.4x on your investment.
Not too shabby.
The performance of MSTR has been extremely polarizing, with many investors (like myself) saying that it can go higher in a period of exuberance, and other investors saying that it’s completely detached from fundamentals.
This is what makes a market…
Which is why the recent ETFs from REX Shares are so interesting, because investors can easily access ±2x leveraged exposure to MSTR. Read more about them here.
Macroeconomics:
Macro was boring this week, but the most important datapoint that I saw was the most recent GDPNow estimate by the Atlanta Federal Reserve. The Q3’24 real GDP estimate was revised to its highest levels, at +3.4% annualized growth.
The official data for Q3’24 GDP will be published at the end of October; however, the forecast from the Atlanta Fed is designed to get increasingly more accurate as we get closer to the official data release because their model gets updated with newer data.
Given that Q1’24 real GDP grew at +1.6% and Q2’24 real GDP grew at +3.0%, any result larger than +3% would mark a continued acceleration in real economic activity.
Wen recession?
Stock Market:
Stocks are at all-time highs and breadth is expanding.
Don’t believe me?
Many of you still don’t.
Objective data is on my side, so I’ll continue to listen to what it’s telling me.
In a 30-minute exercise after the market closed on Friday, I scanned through dozens of different sector, industry, and thematic ETFs all from the top of my head. In my scan, which I published all on X, I found 33 different ETFs that had their highest weekly close of all-time.
These ranged from value stocks to growth stocks.
From home construction stocks to broker-dealer stocks.
From aerospace & defense stocks to water resource stocks.
From high cash flow stocks to high dividend growth stocks.
From growth at a reasonable price stocks to mid-cap stocks.
From infrastructure stocks to high dividend stocks.
From high beta stocks to low volatility stocks.
The fact of the matter is, despite what bears wanted you to believe last year about breadth, is that this market is trending higher and more stocks are participating in the trend than ever before.
Even three months ago, in June 2024, bears were crying about weak breadth.
Where has that gotten them?
Has it been a valid justification to be bearish?
Did it produce any meaningful amount of alpha?
It’s gotten them nowhere. It hasn’t been a valid justification. It produced zero alpha.
Instead, investors simply needed to understand that breadth expands during bull markets, by definition, which has been my outlook for more than a year.
It’s why I was never concerned about “weak breadth” in the first place.
As a result of my belief that breadth will expand during a continued uptrend in stocks, we’re now seeing two extremely underrated indices make massive breakouts.
First, the Value Line Arithmetic Index ($VALUA) continues to make new ATH’s:
Secondly, the Value Line Geometric Index ($VALUG) is making multi-year highs:
These indices, designed to track the performance of the “average” stock in the United States, are only different in terms of how they calculate and define “average”.
Either way, in conjunction, these indices provide information on how the average stock in the U.S. is performing and trending.
In short, the development of new highs (or continuation of new highs) isn’t bearish.
Bitcoin:
We know for a fact that stocks are making new highs and participation is rising.
One narrative that we’ve been hearing for the past 6 months is that Bitcoin has been lagging the stock market, unable to participate meaningfully in the upside that equities have been enjoying.
This has been a valid perspective, because it’s objectively true.
Nonetheless, Bitcoin is currently up +61.6% YTD and is significantly outpacing the Nasdaq-100’s YTD return of +20.7% (which is a fantastic year for the Nasdaq).
While most of Bitcoin’s YTD gains occurred during the first three months of the year, I believe that BTC is about to regain the spotlight once again relative to equities.
Here’s why: the relative performance of Bitcoin vs. the equal-weight S&P 500.
On a relative basis, Bitcoin failed to produce new ATH’s vs. the equal-weight S&P 500.
In fact, BTC/RSP was rejected precisely on the former ATH’s from 2021 and has been consolidating since then, which I’ve illustrated with a regression channel.
However…
That BTC/RSP is starting to break above of that regression channel.
Based on this structure, the ongoing breakout implies a return back to the blue zone.
To be clear, that blue zone is still valid potential resistance, but it’s also a price target.
This is providing traders with a clear opportunity to be long BTC and short equities based on the following chart (daily candles):
There is roughly +16% relative upside to get to the mid-point of the blue zone.
A stop loss would be placed below the recent pivot highs, shown in orange, producing a relative loss of -2.2%.
Combined, this target and stop loss structure produces a 7.15x reward per unit of risk.
If the stop loss is triggered, a trader could sell their BTC exposure and hold onto their short equity exposure, generating market gains if stocks consolidate lower.
I’m not planning to exercise this strategy, but I thought it was interesting enough to share and showcase how I think about relative performance and pair-trades.
Best,
Caleb Franzen,
Founder of Cubic Analytics
This was a free edition of Cubic Analytics, a publication that I write independently and send out to 11,000 investors every Saturday. Feel free to share this post!
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SPONSOR:
This edition was made possible by the support of REX Shares, a financial services and investment company that creates an array of unique investment products and ETNs.
I first collaborated with the REX Shares team in 2023 because I’ve been using their products as trading vehicles since 2022 and it was an organic & seamless fit. They have a unique product-suite, ranging from leveraged products, to inverse products, and income-generating products.
They recently listed their brand new and unique funds, providing directional leveraged exposure to Microstrategy. Whether you’re a bull or a bear on BTC or MSTR, these funds could provide significant opportunities, especially because there’s nothing like it in the rest of the market.
Please follow their X/Twitter and check out their website to learn more about their services and the different products that they offer. The REX Shares team did not have any say about the specific language, analysis, or commentary contained in this report
DISCLAIMER:
This report expresses the views of the author as of the date it was published, and are subject to change without notice. The author believes that the information, data, and charts contained within this report are accurate, but cannot guarantee the accuracy of such information.
The investment thesis, security analysis, risk appetite, and time frames expressed above are strictly those of the author and are not intended to be interpreted as financial advice. As such, market views covered in this publication are not to be considered investment advice and should be regarded as information only. The mention, discussion, and/or analysis of individual securities is not a solicitation or recommendation to buy, sell, or hold said security.
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