Bitcoin nears major breakout as price gains catch US equities

Bitcoin is close to a breakout. Caleb Franzen, the creator of Cubic Analytics, pointed out key data that shows Bitcoin is about to make a big move.

Franzen’s research dives into price movements dating back to November 2022. He uses the 120-day Williams%R Oscillator to track Bitcoin’s price momentum. This indicator has been reliable in showing where Bitcoin is headed.

Stocks and Bitcoin catch up

In the past, when this oscillator has moved from oversold to overbought territory, Bitcoin’s price surged. It happened in January 2023 when Bitcoin shot up by 48% within three months.

It happened again in October 2023, with Bitcoin jumping by 123% in just six months. According to Franzen, returns from these signals are strong.

Since January 14, 2023, Bitcoin has gained 226.8%, and since October 23, 2023, it’s up by 106.9%. Investors are watching closely now that Bitcoin is trading at its highest price since July 2024.

While Bitcoin is rising, so are stocks. Franzen noted that stocks are at record highs, and participation is increasing across the market.

A variety of ETFs have reached their highest weekly close ever, from value stocks to home construction stocks, broker-dealer stocks, aerospace and defense stocks, and more.

According to Franzen, 33 different ETFs hit record highs by the end of last week. He also pointed out how MicroStrategy (MSTR) has performed.

It has closed at new highs, up by 241.76% year-to-date. Anyone who bought MSTR at the close of 2023 would be up 3.4 times their investment.

But there’s been a divide between investors. Some think MSTR can go higher due to market exuberance, while others argue that the stock is detached from fundamentals.

Either way, MSTR is still on the rise, and leveraged ETFs from REX Shares offer investors a way to gain more exposure.

The broader macroeconomic environment has also been quiet, according to Franzen. The most important data point was the Atlanta Federal Reserve’s GDPNow estimate for Q3 2024.

It was revised to +3.4% annualized growth, which would mark an acceleration in economic activity compared to Q1 and Q2 of 2024. For now, the market keeps going up, and investors are wondering when the next recession might hit.

Bitcoin’s relative performance

There’s a lot of talk about Bitcoin’s performance compared to equities. For months, Bitcoin has lagged behind stocks, failing to keep pace with the broader market.

Despite this, Bitcoin is up 61.6% year-to-date, far ahead of the Nasdaq-100, which is up 20.7% this year. Most of the gains came in the first quarter of the year.

Franzen looked at the relative performance of Bitcoin compared to the equal-weight S&P 500. On a relative basis, Bitcoin couldn’t break its previous all-time highs against the equal-weight index from 2021.

It faced resistance but has been consolidating within a regression channel. Now Bitcoin is starting to break out of that channel.

Franzen laid out a strategy for traders. The ongoing breakout implies that Bitcoin could see around 16% relative upside before it hits the mid-point of a potential resistance zone.

He suggests placing a stop loss below the recent pivot highs to protect against a 2.2% relative downside. This setup offers a 7.15x reward per unit of risk.

If the stop loss gets triggered, traders could sell their Bitcoin exposure while holding onto short equity positions, making gains if stocks pull back.

Franzen made it clear he’s not planning to exercise this strategy himself, but he shared it to show how traders could play the relative performance between Bitcoin and equities.

Even when the bears cried about weak breadth back in June 2024, it didn’t stop the rally. According to Franzen, their warnings didn’t generate any meaningful returns.

He believes that understanding breadth expansion is key to navigating bull markets. Now, two underrated indices—the Value Line Arithmetic Index and the Value Line Geometric Index—are making new highs. 

These indices track the average performance of stocks in the US and show just how broad this rally has become.