Thinking outside the box is a metaphor that means to think differently, i.e., from a new perspective. The problem with thinking outside the box in trading stocks is defining, "the box." The most obvious expression of the box is trend, as it is the trend that represents the status quo. That leads us to a weekend update that explores how to think outside of, around, and in spite of, the trend.
Established price trends seldom stop on a dime. More often they will deteriorate gradually over time. When trends do stop seemingly without warning, they tend to do so with a bang. Conversely, that also means a new trend is starting with a bang, likely with a lot of that new trend still to go, opening the door to opportunities not seen since the beginning of that original trend.
A trend gradually losing momentum prior to a turn is one thing, a trend that is about to fall of a cliff is a entirely different animal. In either case, the age of the trend is all that matters. When its time has come, whether its with or without warning, everything will change. While everyone is guessing how many Model 3's Tesla is building, or how many Prime memberships Amazon is selling, or how many Oscars Netflix is winning, or how much debt the Fed is unwinding, there are three outside the box asteroids getting ominously close to this market's long in the tooth trend.
(1) Record bullish sentiment, off the charts bullish sentiment, in some cases at levels that have only occurred in front of 50% or better declines in the market averages.
(2) An ominous geopolitical tension that if it goes just one step too far spells a change in life as we know it. This is not hyperbole, you cannot read or listen to the news and not wonder every night as you go to sleep what the world might look like the next morning. We have as a society become desensitized to peril, the "boy who cried wolf" syndrome. With all that can go wrong and trigger unheralded mayhem it's just a matter of time before calm comes to an end, maybe not so gradually...but with a "bang."
(3) An extended Elliott Wave price pattern that counts as a Wave 5 of 5 of 5 of 5 of 5 going back to 1932. I never found a way to trade Elliott wave, with the exception of the Wave 5 Buy/Sell Signals which are only a small part of the EW paradigm. Nonetheless, I know what I see and I see a terminal pattern of multiple timeframes. As I have written before, EW can't really be traded, but certainly should be respected.
The above observations create a triumvirate of caution that this bullish trend, whether measured from 2016, 2012, 2009, 2002, 1987, 1974, 1949, or 1932 is on the edge of a cliff. In and of themselves, as merely observations they are not tradable. But notwithstanding trading principles of trend-following, we have to be cognizant of these conditions. If and when that time comes, the hows and whys will in an instant, become mute.
Bitcoin has run up from a reactionary low of $3,000 on September 15th, to a high of $5,757 on Friday. That's a gain of 92% in less than a month. During that same time period, the Bitcoin ETF, GBTC, has risen just 14%. In the Special Situations Portfolio we are still flat, ready to buy back into GBTC on a close above $740.