The Trader: Two potential breakout trades

Michael covers recent events and looks at two potential breakout trades.

A lot has happened in the last two weeks.

The US and the UK have attacked Iran-backed Houthi rebels.

The SEC Twitter account got hacked and posted a tweet saying that the Bitcoin ETF had been approved.

Then the Bitcoin ETF finally did get approved.

And an ITV drama, Mr Bates vs The Post Office, has started an outrage against the old postmasters who were wrongly accused and even punished.

The latter proves that human emotions can easily be swung.

Nothing new has been presented in the ITV drama, and the Horizon scandal and Fujitsu’s faulty software has been known for a while now.

But suddenly – people care. And they care enough that the government has been forced to take it seriously. Sometimes all that is needed is an external catalyst to drive motion in known facts.

If we apply this to markets, it’s no different. A stock can be undervalued for a long period of time and nobody cares.

But if it’s tipped by a popular tipster or well-known stock market commentator, the disconnect can close. Nothing changed, just people now care.

The SEC approving Bitcoin for an ETF is huge news.

Bitcoin was one of the best-performing assets of last year.

It’s one of the best-performing asset classes of this decade.

It was one of the best-performing asset classes of the last decade.

It’s easy to hate Bitcoin, but it’s easy to hate what isn’t easily understood.

Here’s the chart.

As crazy as the volatility is, Bitcoin gaining approval for ETFs now means more and more are going to take it seriously.

It means cash inflows, which in turn will drive the price. It’s not unrealistic to expect that Bitcoin will trade higher purely because of the money coming into the asset class.

It’s no different to the crazily inflated prices in 2020 when scores of bored people at home suddenly joined trading apps and bought stocks. A cash inflow is the rising tide that lifts all boats. No different to quantitative easing.

I wouldn’t be surprised to see more crypto-focused businesses listed in London in the coming years to take advantage of Bitcoin and cryptocurrency’s more mature and growing profile.

One such stock that has been popular in recent years is Argo Blockchain (ARB).

The stock went on a mega rally from 3p to 300p.

It’s since hit 3p at the end of 2022 and hit 35p this year – doing another tenbagger run.

There are huge volumes going through the stock, and whilst I feel the company didn’t raise enough money in the recent placing; if Bitcoin does power ahead then the stock avoids bankruptcy. Not only will the fundamentals be improved but investors will be willing to fund it – whereas a few months ago a $10 million placing was not possible.

It’s not for widows and orphans, or anyone not willing to accept a high risk of loss, but it remains on my watchlist purely because crazy moves can and do happen in crypto.

Here are some other stocks on my watchlist

CMC Markets

CMC Markets is a spread bet and CFD provider. It competes with IG and Plus 500.

I’ve never met a CMC Markets or Plus 500 client in real life, but the business is doing better than expected as it released an ahead-of-expectations RNS earlier this week.

The stock started rallying in December and gapped up on the news. It was hard to do this trade in bigger size because it had rallied and so I didn’t want to be liquidity for people who were in the know.

That said, the stock is holding up against the 200-exponential moving average.

I think that if the stock forms a base and moves into new highs then I’ll be looking to take a swing trade long, with my stop under the recent price action.

The next scheduled update is on 9 April 2024, and there could be a trade into the results as people take positions expecting another beat.

Cavendish (CAV)

Another financial markets-related stock is Cavendish, the old finnCap, which has since merged with Cenkos.

The company’s cash balance is currently over £17 million, which compared to the stocks £42 million market cap at 11.75p means little placing risk.

There has been a lot of savings from synergies too:

“We are delighted with the progress our teams have made in the short time since the merger in September. Careful planning enabled rapid business integration, unlocking £7m of cost synergies, more quickly than we originally forecast.”

If we are at the turning point and the beginning of a new early-stage bull market, then both CMC Markets and Cavendish should be beneficiaries of this increased activity.

Obviously, if market conditions deteriorate, then the opposite can also be true.

Here’s the chart for CAV.

If the stock consolidates from its recent low then I think trading the breakout could be a good swing trade.

It’s 100% up from the lows and elevated volume in recent months.

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Twitter: @shiftingshares

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This article is for educational purposes only. It is not a recommendation to buy or sell shares or other investments. Do your own research before buying or selling any investment or seek professional financial advice.