Newsletter of Danny Merkel - Issue #127
Market Review:
The Russell 2000 has reached a critical juncture. As it stands now, the index is potentially forming three lower highs, with the most recent high bordering on a double top:
Of course, it is possible that price goes on to form a higher-high but, at this moment, the above chart does not represent a normal bull-market.
In my opinion, the average stock in America remains in a high-volatility trading range and this is much more difficult to trade than most Twitter traders will have you believe.
Bitcoin:
Besides small-caps, another market that is conspicuously sitting on the sidelines is Bitcoin.
Interestingly, Bitcoin is trading at approximately the same price today as it was 1,000 days ago.
The level of insanity, delusion, and detachment from reality - both inside and outside the financial markets - back in 2020 reached a level probably not seen since the Dancing Plague of 1518 or the cargo cults of Melanesia.
One curious segment of this madness involved a surprisingly large number of individuals who sincerely believed that if they simply bought Cryptos, then they would all somehow receive a Lamborghini in the near future.
How exactly the Lamborghini would materialize in the real world was never made clear; however it was believed (at the time) that adding “laser eyes” to a photograph of one’s self would facilitate the process.
Fast forward to today and Bitcoin going nowhere for a thousand days has allowed most of these individuals to sober up.
The author Charles MacKay was right when he noted, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
Individual Stocks:
There are definitely pockets of strength in the market and I will go over several examples, starting with Boeing.
In the chart below, the solid blue channel represents the boundary of new 52-week-high territory.
This week, BA gapped up to a new high. Not only that, but the volume traded on that day was also a 52-week-high:
This gap up puts BA in a strong defensive position, forming a barrier of support at the $215 price point.
Now you might think that a big, blue-chip stock like Boeing doesn’t have much upside potential, but if you look back at market history, you will see that even this giant has the ability to run.
Back in November of 2016, a powerful rally in BA was ushered in by a new high (red arrow):