Round 2 of China’s Stimulus Bazooka Is Coming By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - This oil major is at a four-year oversold extreme…
- Chinese yields collapse, signaling liquidity to come…
- Long-term U.S. Treasury yields could soon break the downtrend…
- Bitcoin hits another milestone, and dominance surges…
Exxon Mobil (XOM) is at its deepest oversold level since the COVID pandemic… A few weeks back, we looked at XOM as a potential upside breakout. The reasoning was sound – XOM had a great Quantum Score, and the pro-energy policies of the incoming Trump admin were set to reward shareholders of quality oil & gas stocks. (Disclosure, I own XOM.) The stock has broken down instead, in a perilous slide that matches the kind of risk-off activity we haven’t seen in over four years: 
XOM’s Relative Strength Index (RSI) is now under 21, which we haven’t seen since the pandemic panic in March 2020. The reasons why, as with anything involving the oil market, are complicated and multifaceted. But this time around, just as in 2020, a lot of it seems to have to do with a slowdown in China and worries about plunging oil demand coinciding with a surge in U.S. production. In any case, XOM shares are in an extreme oversold condition. That’s worth looking at. I went back and looked at all the times XOM’s daily RSI reached below 21. Going all the way back to 1971, there have been only 10 distinct periods where XOM was this oversold. Do you think XOM is a good buy when it becomes this hated? The data supports it: 
This is a rare condition, to be clear. But the difference in hold times is quite interesting. - Holding for one calendar month or 21 trading days gets you middling average results, with a solid win rate of 60%.
- Two months actually drops the average returns and lowers the win rate.
- And after three months, average winning trades soar along with the win rate.
This speaks to the fact that big price drops in XOM tend to reflect highly uncertain near-term conditions for the global energy economy. Speaking of which… Round 2 of China’s economic stimulus is coming… Another chart that stuck out to me this week is the 10-year Chinese government bond yields. In a word, they’re collapsing. I also added the U.S. 10-year yield chart for comparison: 
The Chinese economy is facing a ton of problems right now. Weak consumer demand and industrial overcapacity are driving prices lower, accelerating a deflationary trend that began after the COVID reopening. In response, the People’s Bank of China (PBOC) has been stimulating the economy with trillions in easing and promising lower interest rates. It’s in many ways both opposite and the extreme of what we face in the United States: The U.S. economy is surging, the consumer is strong, and inflation is stubborn, if not high. The Fed’s cutting rates, but slowly… and hardly in a position where it needs to promise cuts. That’s why we see such stark difference in the charts of each country’s 10-year bond yields. While investors are running away from long-term U.S. government debt and piling into stocks out of simultaneous fear for entrenched inflation and expectations of private market growth, investors are doing just the opposite for China. Investors are piling into Chinese bonds because they fear deflation and deep economic pain. Indeed, China’s stock market is feeling the pain. Since the euphoria of its first “liquidity bazooka” back in late September, Chinese large caps are down more than 16%. U.S. stocks, meanwhile – the envy of the entire world – have added another 7% in value: 
The takeaways here are multifold: - China’s economy is slowing down. That partly explains the slide in energy stocks, as economic slowdowns tend to correlate with decreased energy demand. And China’s the #1 energy consumer in the world.
- China’s set to unleash even more economic stimulus to prop things up. This is good for risk assets in general (like stocks) but especially global risk assets (like bitcoin). More liquidity means more money will be out there seeking returns.
What’s been working lately is disinflationary trends like tech companies and crypto. Just like in 2021, when stimulus was all the rage, that capital should find its way there again. - Chinese stocks are a careful speculation. Lower borrowing cost in Chinese markets should lead to growth in well-managed Chinese companies. But as is always the case in China, there’s a ton of political risk in the country, and the economic trends point toward deflation and consumer weakness. If you’re going to play around here, stick with proven tech firms.
Another thing to point out in U.S. Treasurys… From the peak of 5% over a year ago, 10-year U.S. Treasury yields have been in a steady downtrend… and fluctuating considerably: 
Longtime, dedicated readers might remember us deftly top-ticking the 10-year yield with a trade idea over a year ago. Today, we won’t be quite so brave. Ten-year yields may reverse lower from the upper downtrend line here, but there’s an immense amount of strength behind the short-Treasurys trade right now. This is more of a “watch and see” for me. But if you’re the speculating type, here’s a look at the chart of the iShares 20+ Year Treasury Bond ETF (TLT): 
Just like last year, the price of TLT is trading sideways while its Relative Strength Index is making a series of higher lows. That tells us that the next most likely move for long-term Treasury prices is higher… and yields lower. I seem to recall saying “buy bitcoin”… This was back on Oct. 27, 2023, so my memory’s a bit hazy. But I do believe back at that time I was screaming from my rooftop telling whoever would listen that they should buy bitcoin. Well, gosh darn it, the madman was worth listening to. Since that day, bitcoin prices are up more than 200%. That puts it right in the ballpark of the golden child of 2024, Nvidia (NVDA), for returns since that day. That’s enough self-patting on the back. In fact, I’ve gotten something quite wrong recently. A couple weeks back, I told you that since bitcoin dominance has broken down from its uptrend, it was time to buy altcoins. That was true for a few days… but now, bitcoin dominance is back on the rise. In the chart below, bitcoin dominance is the purple line at the bottom, measuring the percentage it represents of overall crypto market cap. The green and red candlesticks are the BTC price, and the middle pane is its daily RSI: 
The way I see things, the price of bitcoin is in the middle of an uptrending support line and an overhead resistance line (both dashed). It’s also riding a shorter-term support line (solid black). In a month where stocks are largely kind of waffling around, bitcoin is showing rare relative strength, even against its own crypto peers. That’s significant, and it tells me that we could see bitcoin continue to dominate the crypto trade in 2025. I still stand behind what I said recently. The biggest gains in bitcoin have already been made. I’d just amend that and say the biggest gains in bitcoin have been made… this cycle. Perhaps I’ll wind up eating humble pie for this, but I’m fairly confident bitcoin will outlive me. Its nature as a fixed-supply asset and a thus-far proven cyclical trade… along with talk of it serving some purpose as a reserve currency, whether that’s warranted or not… means you should most likely own some. How much is up to you, but I would recommend a small-ish percentage of your overall investable assets, depending on where you’re at in your wealth journey. If you’re younger, probably more… and if you’re older, probably a bit less. But either way, somewhere north of 3% seems appropriate. That way, even if you’re skeptical of the bitcoin thesis here, you won’t miss out on what’s been the best-performing asset class of the year… and far and away the best of the last 15 years. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily P.S. Reflecting on the past two years in the stock market, the massive returns in the best AI plays came when most people had little interaction with AI… during the buildout of the AI “superhighway.” But as this revolution accelerates, AI isn’t going to take over the world – businesses using AI will. Amazon and Facebook didn’t build the internet; they simply figured out how to apply the internet to commerce and social interaction. These are the stealth tech plays we’ve got our eye on here at TradeSmith. And the whole landscape is about to shift in 2025, when OpenAI is rumored to be releasing an AI model that can reason – not just recognize patterns. With this singular event in mind, our friends at InvestorPlace have convened their three senior analysts to lay out an investing road map for the biggest, fastest societal change in history. Watch their presentation now right here; Louis Navellier, Eric Fry, and Luke Lango give away their favorite stock pick (of a company applying cutting-edge AI technology), free of charge. | 
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