We have been telling you to keep an eye on Bitcoin as an indicator of risk. Since we last wrote about bitcoin two weeks ago, it rallied 14% and we saw a subsequent rally in equity markets here in the US. Coincidence? Probably not. Bitcoin is an illiquid, fast-moving market. It may be giving us hints as we try and understand the valuation of this market and how it is going to break out of its current seven-month range. Will the bears or bulls take charge?
Bitcoin's price action may give us clues as to the direction of the slower-moving equity market. As speculators gain confidence in bitcoin and join the rally, speculators in equity markets gain confidence as well. Equity markets have had two very good weeks back to back, and the S&P 500 has rallied just over 3%. Keep an eye on bitcoin. Disclosure: We are not trading bitcoin nor have much interest in it beyond using it as a temperature gauge for risk sentiment and how that may apply to the stock and bond markets.
Two weeks ago, we thought markets might be a bit oversold and due for a bounce. The moving averages have held, and the bulls took the advantage. The S&P has since rallied 3% in two weeks. The S&P closed the week at 2801. While we are still stuck in our 2550-2800 range, we have finally gotten back to the upper level of that range at 2800 - a level we have not seen since March. While equity markets are a touch overbought here, the series of higher lows put in since March give the edge to the bulls. We are anxious to see if the bulls can break free of this trading range that we have been in for the past 7 months. An upside breakout of this range could lead to an assault on 3000.
Investing is boring, not sexy. We are not calling market moves or breakouts. We are contingency planners. The equity market in the US has shown a tendency to go up over time, so we stay invested in markets. We are not calling tops or bottoms, just adjusting the sails a bit. We let the sails out when we see favorable winds. We take them in when we see danger. We are not calling for a breakout here but we are on guard for one, and the wind tilts in the bulls' favor. Just good contingency planning.
This is how to be smarter with money:
- Reminder - You Cannot Predict The Future: Timing the market isn't investing, it's gambling. And how would you react if I said I planned on funding my retirement through gambling?
- Ask, "What Does Money Mean To Me?": Make a simple plan and then make sure your investments serve it.
- Feelings Can Be Very Expensive: Investing is boring. And make sure it stays that way. Don't "play" the market. That's how you get played.
- Use the 72-Hour Test: Very few things need to be bought immediately. Let them sit in your shopping cart for 3 days to prevent impulse buys.
- Automate Good Behavior: Until our robot overlords arrive, make sure to take advantage of our robot underlings. The best way to be consistent about good behavior is to automate it.
- Use The Overnight Test: If all your investments got sold, which ones would you actually re-buy? And why doesn't your portfolio look like that now?
- Know The Fundamental Rules of Investing: Pay off debt. Diversify. Keep costs low. Eliminate unsystematic risk.
- Be Ignorant And Lazy: "TMI" is a bad idea with people you've just met and with investing. If your money is already hard at work, why interrupt it?
Simple, but not easy. So plan, automate and be lazy so you can get out of your own way. It's not gambling, but that doesn't mean it's not rewarding.
Being smart with money is short-term boring but long-term sexy.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.