sport football: Is the Bull Market Over?

December 20, 2024 | Listen Online | Read Online

Is the Bull Market Over?

After a surge in bullish investor sentiment throughout 2024, we've seen fear return to the markets.

And I couldn't be any happier…

I'll tell you why in a moment. But here's what's behind the volatility we're seeing right now.

On Wednesday, Federal Reserve Chairman Jay Powell threw cold water on the bulls when he scaled back the number of rate cuts he expects to make next year.

Throw in the threat of a government shutdown, and it was enough to spark panic on Wall Street.

Wednesday saw the Dow drop 2.6%, the S&P 500 fell 3%, and the Nasdaq and Russell 2000 were down 3.6% and 4.5%, respectively.

We also saw gold and silver drop 2.3% and 3.9%. And bitcoin (BTC), Ethereum (ETH), and Solana (SOL) have been taking it on the chin as they dropped 5.6%, 6.9% and 7.5%, respectively.

So is the bull market over?

I am sure your inboxes will be overflowing with bearish missives about the coming bear market sure to rip your wealth to shreds.

And they're not wrong.

Eventually, they'll be 100% correct… But how much higher will the market have gone up between now and their forecasts of financial armageddon come true?

Friends, it takes no skill to be bearish.

It's the easiest thing in the world to do because eventually, time will prove you right. However, it's very difficult to be bearish at the right time.

I remember in January 2018 when I suggested to my readers it was time to lock in an 11,000% profit on Ethereum.

The howls of protest I received were near universal. And yet, those who listened to me managed to sidestep as much as a 92% drop in ETH.

There will be a time to be bearish. But it's not now. It's easy to confuse a pullback with a change in trend.

Hear me when I tell you the larger macro trend is still bullish.

Just like in 2020 when the stock market (measured by the S&P 500) collapsed as much as 36% at the outbreak of COVID and bitcoin dropped 50%, I told you to ignore the bears and stay long.

Those who listened to me saw the S&P 500 rise as much as 2x off the lows and have watched their bitcoin holdings increase almost 27x in value from the March 2020 low.

Today, I'll go over how I see this volatility playing out… What to do… And most importantly, what not to do.

The Market Is Being Told to Sober Up

The current volatility we're seeing in the equity and crypto markets is being driven mostly by Jerome Powell and partly by the uncertainty of a looming government shutdown.

I'll just say quickly we've navigated government shutdowns before, and we'll navigate this one. The bigger story is the Fed.

The consensus among Fed officials is for two rate cuts next year, down from four previously forecast in September.

Cheap money is to Wall Street what free booze is to an alcoholic: A way to keep the party rocking. Wall Street makes money by accessing money on the cheap and then investing it in higher yielding/high growth assets.

More expensive money, in the form of higher rates, means less money for Wall Street.

So when the Fed threatened to cut down the supply of cheap money, the market threw a tantrum the same way an alcoholic would when he's told he's being cut off.

Now, how long will this tantrum last? I don't know. But I am hoping we see a multi-week selloff in equities and in crypto.

It's an old but true adage that markets love to climb a wall of worry and tumble down a slope of hope.

So this injection of fear and volatility actually builds the base for the next move higher as well as gives investors an opportunity to add to existing positions and enter new positions at much more favorable prices.

Remember, it's been an incredible year in equities and crypto. Despite the recent pullback, the broad market (measured by the S&P 500) is up as much as 23% this year, and bitcoin is up as much as 130%. That price action has fueled an enormous increase in bullish sentiment.

In the crypto markets, that has led to an over abundance of leverage.

As I wrote in this essay… we need to see this leverage washed out of the system before volatility tones down.

When you use leverage, you're using borrowed money to invest in the hopes that your gains will be greater than the interest accrued on the money you borrowed.

Leverage takes time to flush out. On every market rally, the leveraged player hopes and dreams the market will bail him out.

But it doesn't. What happens instead is you see a series of violent selloffs that look like the beginning of a bear market. What they are instead is the market shaking out the overleveraged weak hands.

Here's what I want you to focus on: We're still in the early innings of the melt-up phase of the current bull cycle. And in this phase, the pullbacks are violent.

They're horrific. They're scary.

They make you feel like the end of the world is coming. But it's not.

In the early melt-up phase, there will be face-melting rallies and face-melting pullbacks.

How do you manage the emotions that come with all of that?

First, you acknowledge the nature of this asset. Crypto is inherently volatile. That's the price of admission for making life-changing gains.

Second, you manage risk by using uniform position sizing across your positions. By having uniform position sizes, you don't overown a loser or underown a winner.

And third, when it makes financial sense, you use pullbacks to either add to your positions or to put on new positions.

This is par for the course in crypto. Just this year, we've seen five pullbacks of 20% or more. And each time I told you to buy, we saw prices rally to all-time new highs. (You can read more here, here, and here.)

That's how you take advantage of volatility. You find great ideas and buy them when everyone else is panicking.

Take Advantage of the Volatility

Friends, let the market have its fit. Let it throw its arms around and kick its legs and scream like a two-year-old.

When the dust settles, everybody will realize the economy is actually doing quite well. Earnings growth isn't terrible. We don't need the Fed to cut rates several times to have a robust economy.

More importantly, when it comes to crypto, recognize the narrative is still strong: As long as adoption increases, prices will increase.

Soon, we'll have the first pro-crypto president coming to office. He'll be buttressed by a pro-crypto Congress. Meanwhile, we'll be riding a wave of mass adoption coming from Wall Street and Main Street.

The stars are aligning for a historic melt-up in crypto in 2025. The worst thing you can do right now is sell.

Remember, when bullishness is high, people increase their leverage. As bullishness decreases, that leverage unwinds rapidly.

I've been involved in the markets professionally since 1989. And I've seen it again and again. The leverage eventually washes out the weak hands.

Will it take long? I don't believe so.

In the meantime, it'll set up some incredible buying opportunities for crypto investors.

And as the bull market enters this fear stage and goes into the next stage of the melt-up next year, we'll see those ideas take off into the stratosphere.

Let the Game Come to You!

Big T