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Wednesday, May 18, 2022
It's been a frosty year for crypto, which turned bitter cold during last week's stablecoin meltdown.
As bitcoin (BTC-USD) flirts with levels not seen since late 2020, one institutional trader is making a bold call for a new "consequential bull market."
Last November after bitcoin broke to record highs near $70,000, Yves Lamoureux (a/k/a the "Canadian Whale"), president of macroeconomic research firm Lamoureux & Co., wrote to say we were about to enter a crypto winter. Six months later — Monday to be exact — he's calling the end.
"I see extreme [negative] sentiment from crypto holders, just as we have seen at other bottoms," says Lamoureux.
Bitcoin is famous for its outsized selloffs, several of which have reached 80%. But Lamoureux doesn't believe anything that drastic is required this time to shake out weak hands. Instead, bitcoin has descended in two stages: the initial selloff and consolidation, followed by a drop precipitated by the implosion of TerraUSD (UST-USD) and Luna (LUNA-USD).
"Instead of one big swoon down, bitcoin broke that in two parts — creating less downside than a traditional drawdown. It looks complete in terms of a bear market," he says.
Looking at the technicals, things still look precarious. Bitcoin recently took out last year's lows and has been hovering around $30,000. The cryptocurrency is famous for false breaks to both the downside and the upside — so this could be yet another fake out for the bears. But if bitcoin breaks down through the recent lows around $25,000, then the crypto winter is likely intact and we'd expect a quick trip to $20,000 and then possibly $13,000.
Over in stocks, things haven't been much better this year.
The Nasdaq (^IXIC) and bitcoin have been trading in lockstep with the highest correlation on record. This suggests that for bitcoin to rally, it would need either to decouple from stocks or the two would need to trade higher together.
And amid extreme negative sentiment and price action in stocks, we're beginning to see some bullish calls from Wall Street.
Strategist Michael Hartnett, writing in Bank of America Global Research's latest Global Fund Manager Survey, believes U.S. equities are due for a meaningful bounce. Hartnett notes that managers of over $1 trillion in assets are holding their highest levels of cash since 9/11, while BofA's proprietary Bull & Bear indicator just dropped to a contrarian buy level. But the team isn't calling for the absolute bottom in stocks just yet, writing stocks may be "prone to [an] imminent bear rally but [the] ultimate lows [are] not yet reached."
Bottom line: A flashy bounce in beaten-down growth stocks may just be the catalyst to get bitcoin off the dime. What happens after the first leg up — if it materializes — is up in the air.
For his part, Lamoureux is also bullish on stocks, having recently called for a three-year bull market. "It's not often I am fully invested," Lamoureux says. "I am now. As inflation drops, techs will reflate hard. Watch the FOMO."
What to watch today
7:00 a.m. ET: MBA Mortgage Applications, week ended May 13 (2.0% during prior week)
8:30 a.m. ET: Housing starts, April (1.757 million expected, 1.793 million during prior month)
8:30 a.m. ET: Building permits, April (1.817 million expected, 1.870 million during prior month)
6:00 a.m. ET: Lowe’s (LOW) is expected to report adjusted earnings of $3.23 per share on revenue of $23.81 billion
6:30 a.m. ET: Target (TGT) is expected to report adjusted earnings of $3.06 per share on revenue of $24.34 billion
7:00 a.m. ET: Analog Devices (ADI) is expected to report adjusted earnings of $2.11 per share on revenue of $2.84 billion
7:30 a.m. ET: TJ Maxx (TJX) is expected to report adjusted earnings of 60 cents per share on revenue of $11.6 billion
4:05 p.m. ET: Cisco (CSCO) is expected to report adjusted earnings of 86 cents per share on revenue of $13.34 billion
4:15 p.m. ET: Bath & Body Works (BBWI) is expected to report adjusted earnings of 53 cents per share on revenue of $1.44 billion