McClellan Chart in Focus: Bitcoin Still Blazing Trail for Stocks – By Tom McClellan


Chart In Focus

Back in January, I introduced readers to the revelation that all throughout 2017, the DJIA had been following in the footsteps of Bitcoin prices, with a lag time of about 8 weeks (56 calendar days).  And it continues working even now, albeit with a slight adjustment.

Why would this relationship work?  My answer is that there are cycles of human emotion which affect our collective attraction to and repulsion from speculative investments like the stock market.  It appears that those same cycles of trader emotion are at work on Bitcoin traders, who are feeling those surges and lags in enthusiasm before they reach the hearts of stock investors.

The relationship did not seem to begin working until late 2016, which was when Bitcoin prices first touched $1000 and started getting people really excited.  The 56-day lag time should have meant a Feb. 10, 2018 top for the DJIA, based on a calculation of 56 calendar days from Bitcoin’s Dec. 16, 2017 all-time price top.

Bitcoin and SP500

But instead the DJIA topped on Jan. 26.  So what happened?  My best guess is that the commencement of Bitcoin futures trading on Dec. 15, 2017 may have bent the path of its price action somewhat, thereby disrupting the relationship, sort of like how the huge mass of the planet Jupiter can affect the orbital paths of the lesser planets, and create tides in the sun.  And the arrival of bearish traders who finally had a way to short Bitcoin efficiently affected that market, and may have also affected how speculators were feeling about stocks too.

Because of that misalignment of the blowoff tops in Bitcoin and the DJIA, I adjusted the comparison several weeks ago, shortening the price offset to just 41 calendar days.  That put the DJIA’s Jan. 26 top in alignment with Bitcoin’s December top.  This new alignment seemed to work for a while during late January to early February, but lately it seems to be getting out of phase.  The disruption from the introduction of Bitcoin futures appears to be fading in its influence.  Right now, a lag time of 47 calendar days seems to best fit the current DJIA price data to Bitcoin’s earlier patterns.  It may perhaps eventually work its way back to the 56-day offset which applied in 2017.

If this relationship stays settled into this 47 calendar day lag that the top chart shows, then that implies a decline for stocks toward a bottom due May 23, and then a rebound into June.  But I would advise against basing one’s entire trading plan on a leading indication relationship that did not even work until just over a year ago, and which has been somewhat quirky since then.

Tom McClellan
Editor, The McClellan Market Report

Related Charts
Jan 25, 2018
Enable Images to see this Chart
Finally, An Actual Use For Bitcoin
Apr 05, 2018
Enable Images to see this Chart
Backmasking The DJIA’s Price Pattern
Mar 22, 2018
Enable Images to see this Chart
Crude Oil Swooping Up On Schedule


, , , , ,

Related Posts

About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.