Jim Cramer: If you ask me the big theme of January so far, it’s a total breakdown of all speculative assets, high-flying stocks that trade at multiples to sales not earnings, these horrible SPAC names, recent IPOs that are terrible, and the most speculative of them all – cryptocurrency.
Bitcoin and Ethereum are the largest crypto plays have been obliterated the last few weeks including today, before the bounce that you see on the screen. Despite all the handwringing about the Federal Reserve in Russia massing tanks on its border with Ukraine, I think the immense wealth destruction in this space has put tremendous downward pressure on the stock market too. You’ve got a ton of people buying this stuff with borrowed money and when the margin calls come in, they tend to sell something else in order to raise cash.
In a multi-day sell-off like this, when people end up dumping their winners to pay for their losers and it spreads across multiple asset classes. In other words, even if you don’t care about Crypto, the Bitcoin breakdown had bad- was bad news for the stock market and if you like me and you think it’s a good idea to own some crypto, well, this decline has been especially vicious. Really hard.
So, when will the pain end? Well, I don’t know. Maybe this is the end.
Tonight, I want to focus on Bitcoin and Ethereum because they’re the most legitimate cryptocurrency and crypto is at the heart of the speculative winddown. Unfortunately, this stuff is very hard to analyze because there are no earnings, no dividends, and no fundamentals at all. We don’t own how many shares, so to speak are being issued. And that’s why tonight we’re going off the charts with the help of the legendary Tom Demark, he’s the pioneering head of Demark Analytics with a storied history of timing the markets going back decades. Now, he has got a tremendous track record when it comes to spotting tops and bottoms, especially in crypto. So listen up.
Demark’s got a host of proprietary indicators that he uses to predict changes in a securities trajectory before they happen. You can find these in more detail at his website, which is called symbolik in the way that’s spelled is S-Y-M-B-O-L-I-K. Take a look at the daily chart of Bitcoin.
For September 2017 through October 2020, these 13 shows buy and sell patterns. They’re actually trend exhaustion tops, and trend exhaustion bottoms. They were predicted using Demark’s fantastic analysis.
Now let’s move up to the period from October 2020 to the present. Once again, Demark’s model predicted the Bitcoin peak in April, okay? Of last year. It called [?] the exact day. The exact day! Of the bottom – July 20th. You can learn something about the current meltdown by looking at the decline in Bitcoin from April to June of last year, okay? This collapse was as severe as the 1929 stock market crash. We’re talking something losing more than half of its value, in a matter of 8 to 10 weeks. Sometimes, its kind of breakdown can cause structural damage to a given market, resulting in labored recovery that might not erase more than 50 to 60% of the losses before the decline resumes all over again. However, Bitcoin was the exception. It quickly rebounded off their lows last summer, and snapped right back, hitting a new all-time high in the fall. We look at that! Nice comeback!
After that extended rally, though, Demark’s model turned negative again this time in November, another trend exhaustion top. Since then, we’ve seen a hideous meltdown in all things crypto. At this point, the latest Bitcoin sell off is almost as bad as what we saw last spring. It’s down roughly 50% over 50 trading days. Once again, Demark says there’s a possibility of long-term structural damage in the whole crypto space, which could translate into a feeble rebound whenever this thing stops going down. But Demark’s betting that won’t happen.
Let’s zoom in on the 7-day chart of Bitcoin. Remember Demark has a 13-session countdown pattern that tells him when a rally or decline is likely going to exhaust itself. Right up, Bitcoin’s currently at 11. Okay. This sell off is 11 on the buy countdown. We need 2 more negative closes before his buy countdown trigger fires.
Now, Demark also wants to see Bitcoin testing its downside price targets. It briefly broke down below as a higher target at 34,495 earlier today, before rebounding off lows. However, this rally proves to be short-lived, and Demark wouldn’t be surprised to see Bitcoin getting hit with a 2 or 3-day Panic selling climax, which could take it all the way down to 26,355. Who wouldn’t want to buy it there?
To put this in historical perspective, during the last big meltdown from April last year to late June, Bitcoin was nearly 56% of its value. Take a look at this comparative chart. If we get a similar percentage size to climb from this November high here, then you’d expect Bitcoin at the bottom at around 30,557.
Demark also noticed Bitcoin’s angle of descent last April, got that? The degree of the decline is identical to its current angle of descent. In other words, there’s a good chance that history continues to repeat itself. Keep that number in mind.
Now, how about Ethereum the number 2 cryptocurrency and the one that I have a small position in. Take a look at the daily chart. Based on Demark’s methodology Ethereum, had a 13-day sell countdown goes right into its peak late last year, okay? That told you the rally was exhausted. Now, though Ethereum has already hit 13 on his buy countdown for the first time since the peak. That tells Demark that we could be looking at a trend exhaustion bottom. Right here! Of course, he’s not just looking at his continuous countdown pattern. In order to get a sustainable bottom, Demark also needs to see something hit his downside price targets but fortunately, Ethereum already broke down to his downside price projection at 2,434. So I am incredibly interested in going back into this thing. In short, Ethereum’s got all the ingredients for a trend exhaustion bottom, according to DeMark’s methodology. However, that doesn’t mean it’s necessarily done going down.
If we get another panic breakdown, he could see Ethereum temporary dipping to 1,859 and selling climax, but that would be your moment to buy and not sell into the teeth of the panic. The climax is also what I call the crescendo. So where do I come down? Look, because there’s not much in the way of fundamentals when you’re talking about cryptocurrency, these are digital tokens, not shares or business, that means all we have to fall back on, really are the technicals. Demark and his team have proven themselves to be the masters of crypto. They’ve had some very strong calls with Bitcoin and Ethereum.
So, the bottom line? When the charts as interpreted by Tom Demark, both Bitcoin and Ethereum could be looking at downside trend exhaustion bottoms this week, if not today. I think you need to take them seriously.
To me, that says it might be too late to sell and you need to consider buying. I know I am, especially, if we get a final leg down.
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