This won't be the last time that you read this headline.
The stock market is crashing again to start the last trading week before Christmas. The Dow and S&P 500 both declined by 2.1% today, while the NASDAQ is down 2.3%. The major drivers of this market decline are slowing growth projections, an escalating trade war between the United States and China, as well as rising interest rates.
Investors aren't finding many places to hide during this correction. It has hit not only the equity market, but the bond market and real estate market are showing signs of weakness as well. Even defensive stocks that typically do well during market corrections are in the red today. The decline is broad-based, not an isolated event driven by a particular sector. This should be very concerning for investors that are not properly hedged.
Could this be the bursting of the everything bubble that our central planners inflated over the past decade? Are there any safe havens or sectors offering value during this market panic?
One sector that has not been inflated to all-time highs is the precious metals market. The gold price at $1,250 per ounce is down roughly $700 or 35% from the 2011 highs. But it has been rising lately in the face of this overall market correction.
Gold is up another $10 today to $1,249. It is bullish to see gold bounce back above $1,240, which is a key technical price level on the charts. We would ideally like to see this prior resistance level turn into support.
The gold chart has turned from bearish during most of the year to bullish in the past few months. We are seeing the development of a new bullish trend channel on the price chart, characterized by a series of higher lows and higher highs. We have also seen the break above $1,240 and an RSI momentum indicator that suggests the potential for more upside before it becomes overbought.
The next major technical milestone would be for gold to rise above multi-year resistance at $1,375. I believe such a price move would confirm the next bull cycle is underway and set the stage for a move to new highs above $2,000 per ounce.
Gold mining stocks have been gifting investors with leveraged gains over the past few months. The VanEck Vector Gold Miners ETF (NYSEARCA:GDX) is up 2.4% today, versus a gain of 0.7% for gold. Since this new bull trend has started in early September, gold is up 4.2% and GDX is up 16%, for leverage of nearly 4x!
The GSB model portfolio has benefited from the rising gold price and leveraged returns from gold mining stocks. Our top picks are up 33% and 18% since early September. Our latest gold mining stock pick is up 9% today, compared to the 2.4% gain from GDX. We believe that investors can outperform indices like the GDX by picking a basket of quality, well-researched mining stocks.
We have also hedged the portfolio by shorting a number in recent months. These are companies that we believe are overvalued and likely to decline sharply as the market continues lower. These positions are all profitable at the current time and we suspect they will continue to rack up gains for our portfolio in the months ahead.
Another sector that is up strongly today is cryptocurrencies. Bitcoin is up 11% and Ethereum is up 14% so far today on the strongest rally the sector has seen in months.
While we aren't quite ready to call an absolute bottom in the cryptocurrency market, moves like this are certainly encouraging. We expect exponential gains whenever the crypto bull finally awakens and resumes its bull trend. We have been adding to our positions over the past month, buying in regular tranches as the market offers very attractive entry points.
The chart shows the powerful breakout that occurred in the Bitcoin chart this morning, with the price climbing back above $3,500. There has been a flurry of bullish news for the sector over the past several months, but there was no major news or catalyst this morning to explain the price advance.
This could simply be a few whales (large investors) stepping into the market and creating significant demand for a cryptocurrency with a strictly limited supply. I expect more of these tall green candlesticks in 2019, as multiple financial institutions roll our offerings for institutional investors. We believe that Bitcoin will push back above $10,000 during 2019 and make a new all-time high above $20,000 within the next two years.
I also believe that we could see Bitcoin function as a safe-haven, similar to gold, in the event that the markets continue correcting. Investors looking for a place to move their capital that is non-correlated to traditional financial markets could find crypto appealing. It is one of the only asset classes that is offering such deep value relative to price levels a year ago.
We could be seeing the last major buying opportunity in this sector. While we don't advocate going "all in" at any given point, we believe that all investors should consider gaining a small amount of exposure to Bitcoin and other top cryptocurrencies during this correction.
An allocation of 5% seems like a reasonable starting point. We have a much larger allocation in the Gold Stock Bull portfolio, including exposure to 10 high-potential cryptocurrencies that are addressing real-world problems and disrupting traditional markets in one way or another. These are higher-risk assets, but have the potential for much higher returns.
So while most investors are seeing a wall of red across their portfolios, the GSB portfolio is full of non-correlated assets that have been advancing in the face of a stock market sell-off. We believe it is well-positioned to weather an accelerating market panic and generate significant gains in the months and year ahead.
Lastly, we believe that gold and bitcoin are offering very attractive entry points and will be top performers in 2019, after a rough year in 2018.