"The main event isn't bitcoin. It's using the blockchain to disrupt other industries and Wall Street."
--Patrick Byrne, CEO of Overstock.com (OSTK)
Positive end-of-the-year seasonality is well-known, but what isn't as well-known is that, according to QuantifiableEdges.com, the best period starts two trading sessions before Christmas and ends next week. Small-caps tend to do best.
The confluence of the frenzy in bitcoin-related names with positive seasonality in small-caps already has produced some exceptional trading. I have seen some of the best speculative action in many years in some small-cap names. Traders are digging deep to find the next big mover. Already this morning I'm see some big moves in names such as Net Element Inc. (NETE) , Nxt-ID Inc. (NXTD) and Seven Stars Cloud Group Inc. (SSC) . (Ntx-ID is part of the Stocks Under $10 portfolio.)
Many "experts" are predicting that the bitcoin-related frenzy will die a very ugly death, but there are a couple things they are missing. The most important is that there is a big difference between the trading in cryptocurrency names and the blockchain or distributed ledger names.
Blockchain is a new technology with applications far beyond tracking cryptocurrencies such as bitcoin. This is a theme like cloud computer or the Internet of Things that is in its very early stages. A good example of how early we are in the cycle is that the European Central Bank is running a help-wanted ad for a specialist in distributed ledger technology.
Bitcoin and the various currencies will continue to be quite volatile, but blockchain as a new theme in technology is still very early in the game. Many of the early stocks will be duds, but some winners will emerge in 2018.
I will continue to be very active in trading this sector today, but it will be interesting to watch how the indices act. We have a classic "sell the news" situation with the excitement over the tax bill finally cooling off. There also is some concern about a government shutdown if another short-term deal is not made. We will see some economic data as well, but things should start to slow quickly for the holidays.
Seasonality is positive, but look for that to be mainly reflected in the trading of individual stocks rather than the indices. The indices are holding well, but the big question is what positive catalyst will be embraced next.
We have a mild start to the day, but traders are looking for action.