GBTC - New Leading Sectors: AI And Cryptos (Technical Analysis)

Summary

• Previous leaders of the old bull market are unlikely to see new highs.
• Each new bull market typically heralds new leadership, in the form of new sectors and stocks.
• Artificial Intelligence stands a strong chance of taking up the leadership baton.
• Cryptos and related stocks look like they can deliver outsized returns.

After a strong January, February has proven to be more difficult for the stock market. This has coincided with rallies in the USD and global bond yields, which share an inverse correlation with risk assets.

A large number of growth stocks have broken out higher from multi-month bases and have held their rallies after beating earnings expectations. This tells me that the medium term trend for stocks is still higher, although we may see more range-bound action in the near term.

Based on the charts, two leading sectors have caught my eye, and I think any pullback will create buying opportunities in them.

The first sector is Artificial Intelligence

Many smaller cap leaders within the AI space have experienced explosive rallies since the start of the year, and I think the stage is set for them to embark on the next leg higher.

C3.ai ( AI ) is one such stock. Note the impressive volume coming in, which is above average compared to past levels for the stock. As a percentage of market cap, some of these high-volume days are hitting up to 100% of the stock's market cap in a single trading day. This is a sign of institutional interest. AI is now building a flag pattern, and looks primed to breakout higher.

Daily Chart: AI

BigBear.ai ( BBAI ) is another small cap AI stock that is building a large triangle pattern, digesting its recent rally. I believe its 50% pullback from its highs will prove to be an attractive buying opportunity, given the high institutional interest coming in. BBAI has seen surges in its trading volume, coming in between 41% to 100% of its market cap in a single session of late.

Daily Chart: BBAI

There are many other AI stocks that are on my focus list, as I wait for them to set up. SoundHound AI ( SOUN ) is another clear leader, and is currently consolidating in a flag pattern. Its high volume surges are also signs of heavy institutional interest.

Daily Chart: SOUN

These three AI stocks are amongst many others I am monitoring. Do keep in mind that the leading stocks of the previous bull market rarely recover to their highs again. Each bull market typically begins with new leadership, in the form of new sectors and stocks. The AI space is still fairly new, and we could see huge gains in the smaller cap names.

The second sector I am watching closely is the Crypto space

Bitcoin ( GBTC ) and Ethereum ( ETHE ) have recovered above their pre-FTX highs, and have been largely unmoved in the recent selloff. This relative strength is impressive, and stands out amongst risk assets.

Daily Chart: Bitcoin

Daily Chart: Ethereum

There are a few crypto-related stocks that I am watching closely.

Silvergate Capital ( SI ) has found it very difficult to make new lows, despite all the bad news (missing earnings, etc.). Recently, trading volume has surged, and this has coincided with BlackRock and Citadel increasing their stake in the stock. If the big boys are coming in, I want to ride on their coat-tails. SI is now building a multi-month base, and short interest is 78% of float.

Daily Chart: SI

Crypto miners also look good. Riot Platforms ( RIOT ) has seen a surge in trading volume, with dollar value traded hitting as much as 16% of its market cap in a single session in the past few weeks. The stock has also recaptured above its moving averages, which are now starting to provide support from below.

Daily Chart: RIOT

Marathon Digital ( MARA ) has also seen a huge pickup in volume. On 13 Jan, volume traded hit 65% of its market cap. There is quite certainly institutional buying involved, as retail traders are not likely to move the stock in such a big way. Short interest on MARA stands at 44% of float.

Daily Chart: MARA

To sum up, if we are at the start of a new bull market, then the leadership baton is likely to be passed to a new sector. I think the AI sector stands a good chance in this aspect.

As previously mentioned, old leaders of the previous bull market are unlikely to recover to their highs. As such, crypto stocks are unlikely to see new highs in the near future, but may still deliver strong returns.

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