Last week, the stock market hit a new record high, a milestone. “DOW 30,000” has become a reality.
In several recent articles, I’ve explained that this market would indeed continue higher, and new record highs are still coming. Moreover, the distortions that exist within the market continue to get much larger. And, as I have warned, these distortions will, at one point in time, correct themselves.
This past Thursday, on Thanksgiving Day, cryptocurrencies suffered a major correction, one I believe needed to occur because no asset can go straight up without a corrective process. Cryptocurrencies have made a large, rapid move higher as of late… a drop in price had to occur.
In aggregate, the cryptocurrency market is thinly traded relative to the stock market, and, as such, very sharp and rapid shifts in the price action of any thinly-traded asset must be expected from time to time. When an asset makes a large move higher within a short period of time, a corrective phase will occur that creates a floor for yet another leg higher.
SEE BELOW. Typical price action of an asset that has made a significant move higher in a short period of time.
Understanding the mechanism of price action presents opportunity. (See my daily MarketReport for further info.)
Cryptocurrencies needed to “pull back” in order to make a new leg higher. Now, with the recent drop in the price of these assets, I would be on the lookout for that new leg higher.
The stock market is due for a corrective phase as well, but with the promise of more easy money from the Fed and the prospect that under a Biden administration former Fed Chairwoman Janet Yellen will get nominated for Treasury Secretary, the market nonetheless is euphoric.
I remain a major Bull regarding cryptocurrencies and the stock market. With cryptocurrencies, the number of people worldwide who want to hold/own it instead of dollars or other central bank-issued currency continues to grow. Regarding the stock market, the promise of multiple trillions in more debt and suppressed rates will continue to drive stocks higher.
by Gregory Mannarino, TradersChoice.net
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