The Message of Bitcoin Prices

Today, November 29th, is popularly known as Black Friday in the United States. However, people are doing more than shopping for the holiday season today. All over the world, individuals are sending a clear message to sovereign governments and their central bankers. GET YOUR FISCAL HOUSE IN ORDER AND STOP PRINTING MONEY!

This clear message is being translated through Bitcoin prices which have gone "parabolic" and are  actually now as high as the price of gold. Incredibly, the price of one Bitcoin traded at $1,250 this morning, the same market price as one ounce of gold.

While every veteran trader has heard about the Tulip Mania in the 1600's, today's action in Bitcoin prices spurred me to do a little research and pass along a few "bits" of information here. At its peak in 1637, a single tulip bulb was said to be sold for 10 times the annual income of a skilled craftsman. In the classic book titled "Extraordinary Popular Delusions and the Madness of Crowds" as published in 1841, author Charles Mackay claims that at one point in in the madness 12 acres of land in Holland were offered for a single Semper Augustus tulip bulb.

I am almost 60 years old now and I have witnessed dozens of speculative manias, but none even remotely approaching the mania currently unfolding in Bitcoin prices. The great Sir Richard Branson recently "blessed" the whole concept of Bitcoin prices with his heralded announcement that Bitcoins would now be accepted for advance payment on his planned future commercial space flight venture. And the financial media is loving every minute of this madness, as stories circulate of about millions won (and lost) in this fascinating arena.

So what does it all mean, and where do we go from here?

For the Bitcoin, I think it will end very badly for most investors in this market. I sincerely believe that Bitcoins will soon be compared to Tulips as the speculative bubble here collapses. Right now, as far as I know, the Bitcoin is NOT legal tender in any country in the world. Look-a-like virtual currencies are already proliferating and it's just a matter of time before "Regulators" from every major country rein in the excesses in this fringe market by outlawing these products, or regulate them to extinction, or introduce their own virtual currencies.

Of course, my view of the final chapter on Bitcoin prices is "just one man's opinion" and probably worth what you are paying for it (nothing!), but never-the-less I think it may be noteworthy.

So what about Gold? Can we learn anything from the dramatic rise in Bitcoin prices that may help us gain an edge in this oldest of (real) currencies? I think the answer is a resounding YES!

Right now, China appears to be buying the entire world's newly mined production of Gold every month. It's incredible to me that so much Gold is being bought by one single buyer apparently "under the radar" and without significant price distortion. What's the story here? It appears to me that China would like its currency, the Yuan, to be a major global reserve currency, just like the U.S. Dollar is now. The Chinese Government sees the massive global debasement of currencies now underway, and it naturally wants to protect itself from the obviously negative consequences of this debasement. To the Chinese, Gold may be THE answer, or at least their single best answer to this problem. I strongly believe that China will "soon" announce some sort of Gold backing to the Yuan. The timing is unclear, of course, but it's not hard to imagine that an announcement like this could happen anytime over the next two years. Of course, Gold prices would soar and every other major world economic power would have to consider Gold as a reserve to their own currency. Where could Gold prices be in five years under this scenario. I don't think it's a stretch to forecast a Gold price exceeding $10,000/oz, especially after witnessing the current speculative climate for Bitcoin prices. And for Silver, prices could easily jump to more than $200/oz over the same 5-year period.

U.S. Stock Market - The Perfect Storm !

Dow Jones Industrial Average     16,000

S&P 500 Index                                  1,800

Nasdaq Composite Index               4,000

With today's intra-day high in the Nasdaq Composite at 4,007, all three of the above major U.S. stock indexes have now experienced upside breakouts above key "psychological" round number resistance levels over the last three trading sessions. And many uninformed Wall Street pundits are now predicting that the logical next upside targets are 20,000 for the DJIA, 2,000 for the S&P 500, and 5,000 for the Nasdaq Composite before any meaningful correction. 

The bullish case is simple and compelling: DON'T FIGHT THE FED !

As the new Fed Chairman early next year, Janet Yellen is expected to continue on the path of easy monetary policy as so ably executed over the last five years by the current Fed Chairman Ben Bernanke. With short-term interest rates near zero and longer term interest rates still less than 4%, is the U.S. Stock Market THE ONLY GAME IN TOWN? The bulls say yes, of course, but I still believe that the "perfect bearish storm" is now on the immediate horizon.

When we are 25% lower on all the major U.S. stock market averages three months from now, many will look back at today's peaks (DJIA above 16,000, S&P 500 above 1,800, and Nasdaq Composite above 4,000) and wonder why they didn't see the inevitability of this correction. 

Valuation analysts could point to the fact that the Shiller Cyclically Adjusted P/E is now 25, which is more than 50% above its long-term average of 16.5 and now at its highest level since December 2007. Technical analysts could point to the plethora of worrisome overbought signals, contrary sentiment indicators, and negative investor cash reserve variables. Momentum traders could focus on the recent loss of leadership in high flyers like FaceBook, NetSuite, and Tesla Motors, among others.

And some of the braver Wall Street analysts are in fact sounding the alarms, but few are listening after five years of rising prices and no apparent threat to the one constant overriding support to this great bull market --- easy U.S. and Global Central Bank Monetary Policies. Most late-stage buyers mistakenly believe that they will surely know when the music is about to stop. Easier said than done! Unfortunately, no one rings a bell to signal the top in stock prices! And significant corrections can quickly unfold, without warning!!

In my computer trading system, daily chart sell signals were triggered at today's close in Colgate, Disney, GE, and UPS, all important bellwether stocks for the overall market. Intel has been especially weak over the last few sessions, and Cisco Systems has been crushed. 

In the interest of full disclosure, for my managed accounts I am currently long the double-short S&P 500 SDS ETF. And over the last three days I have re-entered the precious metals mining sector with fairly large purchases of the following Gold/Silver mining stocks: First Majestic (AG), Endeavour Silver (EXK), Primero Gold (PPP), and Goldcorp (GG). These stocks now represent 15% of total assets under management from 0% early last week. In my computer trading system, buy signals were triggered at today's close in the following Gold/Silver Mining Stocks: AG, AUY, CDE, EXK, FSM, GLD, and HL.

U.S. Stock Market - Daily Chart Computer Sell Signals Today !

Daily chart sell signals were triggered in several major stock indexes by my computer trading system at the close of trading today. Sell signals were triggered in the S&P 500 Index, Nasdaq Composite, Russell 2000, and the Dow Jones Transportation Average (IYT). Sell signals were also triggered in the following ETF's and sector indexes: NDX, QQQ, IWM, TXX, MSH, XAL, and BKX.

Among the more notable individual stock sell signals that were triggered today are as follows: AMZN, DOW, DD, IP, CRM, TOL, TRW, and NKE.

S&P 500 Daily Bar Chart with Computer Generated Buy & Sell Signals