Alessio Rastani On The State Of U.S. Stocks And Bitcoin
POLAND – 2020/07/16: In this photo illustration a multiple exposure image shows a Bitcoin logo … [+] displayed on a smartphone with stock market percentages on the background. (Photo Illustration by Omar Marques/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
When the stock markets crashed in March, Alessio Rastani was buying into the S&P 500 and the UK FTSE 100, averaging down by going long as the S&P 500 dropped from 2600 to 2191. Even though most investors were bearish and anticipating another stock market crash, Rastani was bullish and profited from bearish sentiment.
Now, Rastani is looking to pull out of stocks as he believes that the U.S. stock market is about to enter, a “risky zone.” In this exclusive interview, Rastani shares his thoughts on why stocks in the near future carry risk, how this risky zone could impact bitcoin’s price and why he is bullish on bitcoin’s long-term picture.
Bullish on U.S. stocks
According to Rastani, as long as the S&P can remain above 2550, he will maintain his long-term bullish perspective on the stock markets. Rastani thinks that most investors considered the recent stock rally to be nothing more than a bear market rally or correction. He disagrees with this perspective for 3 reasons:
- The speed and intensity of the crash in March and the subsequent quick recovery (we went from bear to bull market in 5 weeks). We are still in a long term uptrend.
- The up-volume thrust behind this rally has pushed the S&P above resistance.
- The fact that the majority of people have not believed in this rally (and were bearish) until just recently when the S&P entered the 3100-3200 zone. The economy and stock markets are not correlated either.
Stocks could enter risky waters
The U.S. stock market is getting very close to a 100% full recovery from the black swan crash of March, and because of this, Rastani calls it a “risky zone” for stocks. Rastani says, “This rally is going to get overbought and over-extended soon–and the ‘dumb money’ is likely to enter at the worst possible time—very likely when the S&P gets to the 3150-3200 zone.”
Rastani says that: “At the time of writing, the stock market has already reached my first targets at 3150 to 3200 (the levels I mentioned in my video 2 weeks ago on 22nd May). I think the markets will likely pause here near 3200 for a pullback, while the potential still exists for this rally to ‘fill the gap’ at 3300 in the next few weeks or months.” He thinks that between the 3200 to 3300 levels is where “the most risk exists,” as shown on the chart scenarios below:
S&P 500 Weekly Chart
Photo by Alessio Rastani
Rastani sees 2 potential scenarios playing out for the chart above:
- Either the market could start the corrective rally from near current levels at 3200 for a corrective drop down to the 2800 to 2700 levels in the next few months—shown in white, or;
- A pause near 3200 to 3150 for a while before pushing higher to 3300 in the next few weeks to “fill the gap” on the chart—shown in yellow—and once the gap is filled, the S&P will likely drop in a correction back down to 2900 to 2800.
However, in both scenarios, Rastani is still bullish for the long term, as we will likely see a multi-month rally above the highs of this year.
Rastani is essentially eluding to the idea that once the stock markets return back to their former glories, then this could potentially lead to a massive sell-off of stocks as the majority of companies are in the black and reporting losses. This means that if such a massive sell-off were to take place, then retail investors that buy into this hype could suffer the brunt.
“Unfortunately, most people have been on the wrong side of this market – they were bullish at the worst time (in January-February 2020), bearish at the worst time (from the end of March to May 2020), and now greedy at the worst time (June 2020), as this chart below shows.”
Dumb Money Sentiment
Stockcharts
If this scenario on the stock markets played, bitcoin could also take a temporary nosedive. Rastani says, “If the positive correlation between bitcoin and the S&P 500 continues, which is likely, then bitcoin could also see a retracement or correction at the same time when the S&P starts its corrective drop. But this correlation remains to be confirmed by price action.”
Long-term bullish on bitcoin
Rastani says, “I have been bullish on bitcoin since late March and early April 2020—especially when I saw bitcoin holding the weekly 200 moving average (200 WMA). This was an important bullish clue, and as long as bitcoin remains above 7000, I will continue to remain bullish for the long-term.”
He further goes on to say, “Once bitcoin escapes the 10K resistance potentially in the next few months, we are likely to see extreme bullish sentiment in the bitcoin community. This is especially the case as we likely approach the 11K to 12K levels. I would use that contrary signal as extreme optimism—a likely indication that we are reaching the next turning point for bitcoin.”
“This would then likely be followed by a drop or correction (Wave 2) back down below the 10K level towards 9K by September or October of this year. However, this will likely be the last time bitcoin goes below 10K. This is because once the correction ends this year, I see a much bigger bullish multi-month rally (Wave 3) towards significantly higher levels in the near future— I.e. towards 14K this year to 20K by next year—and then towards 30K to 50K in the next couple of years.”
In the short-term
Due to the danger zone that stocks are currently about to enter right now, Rastani said in May that he is looking to exit stocks. “I have been taking profits along the way in this rally, but I am not completely out yet. I am looking to exit the stock market and take the majority of my profits. I’ll do this when the S&P 500 goes into the ‘risky danger’ zone between 3150 to 3200,” says Rastani (levels which have now been reached).
“I am happy to remain in cash until a better opportunity develops to go long on the US stock markets again— and potentially bitcoin. I will wait for a corrective drop back down to support before I buy again. It’s of my opinion that sometimes the best position can be to do nothing–I.e. stay in cash until a high probability chart setup appears.”
