💗Is Wall Street In Love With Bitcoin?

What’s on the Menu 🍴

The inflation numbers got a bump yesterday…

Which sent stocks tumbling.

But was that reaction overblown?

• What Is Going On With Inflation? 🤔

• Is Wall Street In Love With Bitcoin? 💗

• Breakout Charts: What We’re Watching 📈

Today’s newsletter is a 4 minute read.

What Is Going On With Inflation? 🤔

On Tuesday the US Consumer Price Index (CPI) data for January was released, with official inflation figures clocking in at +3.1% year-over-year and +0.4% month-over-month.

Some economists thought this report would show inflation falling under 3% for the first time since March 2021, but the numbers came in slightly hotter than expected.

Stocks and bonds fell hard on the news, as projections for interest rate cuts were pushed from May to June.

Are we getting a reflation scenario and will the Fed need to hold rates higher for longer?

Diving deeper into the data suggests that those fears are probably overblown.

Once again, the flawed & heavily lagged shelter component of the CPI is skewing the picture.

Take a look at the year-over-year inflation rate excluding shelter:

Inflation excluding shelter was just +1.55% year-over-year!

This aligns much more closely with “alternative” inflation gauges such as Truflation:

Housing is the largest monthly cost for most consumers, BUT the shelter component of the CPI has serious flaws…

The measure is heavily lagged, reflecting conditions from 12-18 months ago and it’s also subject to noisy short-term variations.

Check out the odd divergence we’re currently seeing between CPI’s “Owners Equivalent Rent” shelter measure and the real-time observed rent prices from Zillow:

Our guess is that we’ll see some wonky mean reversion of shelter costs in the next few months that will once again flip the inflation narrative back to softening.

For now the Fed may wait longer to cut rates, and that could be a catalyst for markets to cool off after a brisk rally to start the year.

But in our view the fundamental disinflation trend remains intact.

We’re keeping our fingers crossed for a buyable dip in stocks, crypto, and bonds! 🤞

Is Wall Street In Love With Bitcoin? 💗

From the very first issue of the Daily Dough last summer we’ve been bullish on bitcoin for several reasons (spot ETF approvals, halving coming in April, and wide global adoption)…

And for the first time in bitcoin’s short history, it seems like Wall Street loves bitcoin more than retail investors.

The amount of capital flowing into bitcoin ETFs over the past months has been nothing short of mind blowing!

We’ve seen nearly half a BILLION dollars a day flowing in…

In fact, bitcoin ETFs exceeded $3 BILLION worth of net inflows in just one month…

Which took the Gold ETF 2 years to hit that level.

But despite all the capital filling the ETF buckets, retail traders seem to be missing the boat.

Why?

Well, if we take a look at recent google trends results, we can see the keyword “bitcoin” is still hovering around multi-year lows…

And according to my Twitter followers, over 50% of them don’t see Bitcoin hitting a new all-time high this year.

This is oddly tempered expectations from a crowd that’s usually first to scream “BUY & HODL!”

And this is despite Bitcoin being at or near highs compared to other fiat currencies like the Japanese Yen.

So, will capital continue to accelerate into bitcoin?

It’s looking like the pre-halving hype is building, and the major Wall Street players are betting big on BTC.

With that said, be prepared for some high volatility and fast pullbacks as we get into “extreme greed” territory.

Breakout Charts: What We’re Watching 📈

As the S&P 500 and Nasdaq indices have roared to new highs, you’d think many breakout trading opportunities would have already happened.

Typically, when the markets have very bullish structure, you’d expect breakout charts to follow.

But, something else has been happening.

We’ve seen a lot of technical charts in stocks lag behind the big runs in the indices.

It’s leaving many charts ripe for potential future breakout trading opportunities.

Keep in mind, you can be a trader who mainly focuses on technical analysis (the charts or price action), or someone who focuses on fundamentals (the financial data and valuations).

In our Wealth Building Community, we have a mix of people using different styles, but, my favorite trading style is mixing technical analysis with fundamentals analysis when swing trading stocks.

Here are some interesting charts we’re seeing out there that could bring swing trading opportunities in the future:

Robinhood (HOOD):

Type of trade- Technical bottoming breakout.

Robinhood has a few things going for it on the fundamental side as Bitcoin and risk on trading ramps back up, plus the launch of their retirement accounts. However, this is generally a very technically focused idea.

The chart is setting up what we call a “bottoming breakout”. Since its IPO, it has been trying to find support and breakout of the $13 zone. It hasn’t been able to accomplish this yet, but, price is surly trying.

Carvana (CVNA:

Type of trade- Technical Breakout

Carvana has been a friend to us in the Wealth Building Community in 2023 as a great trader.

It might be bringing another opportunity along with an attempt to break out of the $58 zone.

It has a high short interest, which means it could have a lot of buying momentum if price continues higher from here after its expected earnings report (aka: a short squeeze).

Upwork (UPWK):

Type of trade: Technical bottoming breakout.

Upwork is a platform connecting freelancers with business owners who need jobs done.

There have been concerns about their survival with the rise of artificial intelligence, but, the chart is saying that investors might just feel better about the risks.

The $15.50 breakout zone has been a point of contention with price being unable to break through. But, if it keeps trying, it could bring an opportunity as it tries to move off of a major bottom.

UPWK has been trying to recover after a major +800% run. We’ve traded in and out of this one, so, it’s no stranger and is on our radar.

There are many other charts out there, and we think the trading opportunities will be abound this year.

When trading, it’s important to know what market environment you’re in so that you don’t waste capital with the wrong strategies.

With these names being unable to breakout as the market roars higher, be aware that they could very well have corrections if the broad indices pullback as well.

However, that doesn’t mean the trade opportunity will fly away… it just means you may need to be more patient and wait for the right opportunity to strike.

Trade less, profit more is our motto!

Food For Thought 🧠

“I’ve developed a new open source P2P e-cash system called Bitcoin. It’s completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust.”
- Satoshi Nakamoto

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.