How To Trade The Trump Bitcoin Rally

Given the action in Bitcoin since the election, one would think that the President-elect's number one issue during the campaign was his positive stance on the cryptocurrency asset class!

Of course, this was not the case, but the fact that the cryptocurrency was able to push above its all-time highs from March has given Bitcoin a very, very nice "breakout move."

The question now is whether the rally will continue over the last few weeks of the year.

[Click here to Join Matt’s Webinar Talking About the Top Trading Strategies for Today's Bull Market]

Here’s where I see Bitcoin going next.

Back in late-October, I said that any kind of a meaningful break above the March all-time highs would be very, very bullish for Bitcoin, and the election was the catalyst for that breakout. It has now rallied another $13,000 dollars, so there is no question that we have a confirmed breakout move in this asset class.

I do need to point out that Bitcoin is starting to become overbought. If you look at its weekly RSI chart, it has reached the kind of overbought condition that existed in June, that was followed by a pullback of over 20%:

I'd also note that Bitcoin’s weekly Bollinger Bands chart has become extremely extended, showing that it’s no more than 2-standard deviations above its 20-week moving average. So, if you look at these readings, you should be concerned that Bitcoin is becoming ripe for some sort of meaningful pullback before long.

However, I’d also note that Bitcoin became a lot more overbought before it rolled back over in both December of last year and March of this year. (It has certainly become more overbought at other times over the past half-dozen years as well.)

Therefore, the cryptocurrency could easily push quite a bit further before it sees any kind of meaningful pullback. Given that the inflows into the crypto ETFs was well over $2bn on the first two days following the election, and the move above $80k has made so many headlines over the past two days, those flows are unlikely to dissipate any time soon. So that is something that also bodes well for this asset class. 

In other words, it's very hard to tell investors (and especially traders) that they should avoid "chasing" Bitcoin or the other cryptos up at these levels. This is something I did say about the bank stocks earlier this week, and I still think this is a good strategy to follow. I think that investors should look for a pullback at some point soon in the bank group. However, this is a much harder call to make in Bitcoin. The euphoria is very strong, and FOMO for this asset class is very strong among individual investors.

Therefore, I think that for now, investors should follow the old adage, "the trend is your friend." Although Bitcoin is something that investors should be careful about chasing aggressively up at these levels, taking profits is something that investors might want to avoid, at least until Bitcoin’s overbought condition becomes more extreme. 

Join Matt Maley on November 13 at 6 PM ET for a live, interactive masterclass on trading in today's high-momentum market. Learn how to identify trends, set precise entry and exit points, and use options strategies for maximum gains in a bullish environment. Claim Your Spot Now

Image via Pixabay