Summing Up The Week

With Congress still on recess, there’s no move in the stimulus front, but nothing seems to cause the markets to pause.

A new perspective from the Federal Reserve combined with positive housing numbers seemed to be all the market needed to drive it to higher-highs.

Let’s look at the news that moved the markets this week…

Market News

Fed Announces New Approach to Inflation for Lower Rates

On Thursday, Federal Reserve Bank Chairman Jerome Powell announced a major policy shift to “average inflation targeting,” reported CNBC.

Rather than trying to curb inflation and keep it at a steady 2% gain each year, the central bank will now be more inclined to allow inflation to run higher than the standard 2% before increasing interest rates.

Increasing interest rates typically slows the growth in an economy as both consumers and businesses lose their power to borrow and slow investing or purchasing. By keeping rates low, the Fed is offering more buying power in the economy. The additional buying power usually leads to inflation – increasing prices in goods and services – which the Fed historically has tried to curb to 2%. The new policy announced shows a dramatic change in the Fed’s ongoing approach.

In addition to the change to its approach to inflation, the Fed announced a change to its approach to employment in a way that will focus on Americans at the lower end of the income spectrum.

The markets saw this new approach to interest and ongoing lower interest rates as a positive to the economy and rose higher as a result.

Pending Home Sales Jump 15% Annually in July

The National Association of Realtors (NAR) announced Thursday that pending home sales jumped over 15% annually in July, as properties go under contract in record time, reported CNBC.

Pending home sales are used as a measure of signed contracts purchasing existing homes, increased 5.9% in July over June, according to NAR. 

On whole, home sales were 15.5% higher annually. “Home sellers are seeing their homes go under contract in record time, with nine new contracts for every 10 new listings,” said NAR chief economist Lawrence Yun. 

These results contradict historical trends which show the housing market typically sees a slowdown this time of year. Yun said he does not expect sales to drop off in the historically slow fall season, either. Instead, he is predicting existing-home sales to increase to a 5.8 million annualized pace in the second half of the year. This would bring the full-year total to 5.4 million, a 1.1% gain compared to 2019.

“Anecdotally, Realtors are telling me there is no shortage of clients or home seekers, but that scarce inventory remains a problem,” said Yun. “If 20% more homes were on the market, we would have 20% more sales because demand is that high.”

Economists point to the record low mortgage rates in July as an additional catalyst encouraging buyers to purchase homes.

Next Week’s Gameplan

Many professionals say the market’s frothy and due for a pullback while still others point to the trillions of dollars in cash in the investment accounts of both the professionals and the retail investors.

Who’s right?

Are we going to just keep heading higher or is there a bad news catalyst somewhere on the horizon that will finally cause the markets to lose steam? Only time will tell.

In the meantime, work on your Trading Plan because a slow upward market like this gives us plenty of time to get our moves ready for whatever happens next.

This Week in Play

Stay tuned for this week’s episodes of my two portfolios Investments in Play and Speculation in Play coming online later this weekend! 

Crytpo Corner

Bitcoin Price Action

Bitcoin started price consolidation this week, but not before making a new weekly low down at $11,102.73 on Tuesday. On Thursday, the Bears made a second attempt to crack through the low, pushing the price to $11,125.00 but not being able to make it lower from there.

The Bullish Case

Bulls point to the new price consolidation between $11,102.73 and $12,486.61 as bullish with Bitcoin holding support above $10,000 for the first time in many, many months. The bullish argument is that the break of consolidation will be higher with Bitcoin making an attempt to break 2019’s high near $14,000.

The Bearish Case

Bears argue that the weakness in Bitcoin’s price action combined by news stories that institutions are highly shorting the crypto means that Bitcoin’s next move is down, far down. Key levels of support are the Support of Last Resort around $10,800-$10,900 followed by the monthly low at $8815.01 and lower still by the Line That Shall Not Be Crossed around $8000 and so on.

Bitcoin Gameplan

Current Allocation: 0.889% (unchanged from last week)
Current Per-Coin Price: $11,161.44 (unchanged from last week)
Current Status: +2.648%

Bitcoin has never been a logical asset to predict when it comes to what to do next. My position has remained unchanged for the entire month of August since I first opened it on August 2, and that’s fine. When playing an asset with the deep swings in volatility that Bitcoin has, I’ve gotten used to being patient. Trying to play with the small volatile swings just results in losses for me.

Bitcoin Buying Targets

Using Moving Averages and supporting trend-lines as guides, here’s my plan of buying quantities and prices:

0.908% @ $10,378
0.908% @ $9988
0.908% @ $9447
1.362% @ $8958
1.815% @ $8551
2.269% @ $8103
2.269% @ $7837
2.723% @ $7309
3.177% @ $6628
3.631% @ $6158

Bitcoin Selling Targets

As I mentioned above, my selling targets involve waiting for Bitcoin’s next move.

Why the differing quantities at each level instead of a flat percentage?
Rather than buying an equal percentage, I change my buying quantity at each stage as a reflection of how likely Bitcoin could bottom and rebound from that stage. Rather than increasing my quantity on the way down, I’m used a fixed amount of money, so I’m basing how much I buy by how likely I think Bitcoin will drop to a certain level. In this case, I don’t think it’s likely Bitcoin will be able to break its $3128 low, so my quantities under that price point are less to account for the chances it will get to them.

No price target is unrealistic in the cryptocurrency space – Bullish or Bearish.
While traditional stock market investors and traders may think the price targets in the cryptocurrency space are outlandish due to the incredible spread (sometimes a drop of near -90% or a gain of up to +1000% or more), Bitcoin has demonstrated that, more than any speculative asset, its price is capable of doing anything.

Here are just a few recent price movements over the past couple of years:

• Bitcoin rose +2,707% from its January 2017 low of $734.64 to make an all-time high of $19,891.99 in December of the same year.
• Then, Bitcoin crashed nearly -85% from its high to a December 2018 low of $3128.89.
• In the first half of 2019, Bitcoin rallied +343% to $13,868.44.
• From June 2019, Bitcoin dropped -54% to a low of $6430.00 in December 2019.
• From December 2019’s low, Bitcoin rallied +64% to $10,522.51 in February 2020.
  
• In March 2020, Bitcoin dropped -63% to a low of $3858.00, mostly in 24 hours.
• From March 2020, Bitcoin rallied +224% to $12,486.61 in August 2020.
• Where will Bitcoin go from here? Truly, anything is possible…

What if Bitcoin’s headed to zero?
The only reason I speculate in the cryptocurrency space is I truly believe Bitcoin isn’t headed to zero.

I am prepared for that possibility, however, by knowing I could potentially lose all of the capital I’ve allocated to this speculative investment. Professional advisers recommend speculating with no more than 5% of an investor’s overall assets. Personally, I’ve allocated less than 2% of my assets to speculating in crypto.

I feel that anyone who doesn’t believe in the long-term viability of cryptocurrency would be better served not speculating in the space.

On a good day, this asset class isn’t suitable for those with weak stomachs. On volatile days, the sector can induce nausea in the most iron-willed speculator.

DISCLAIMER: Anyone considering speculating in the crypto sector should only do so with funds they are prepared to lose completely. All interested individuals should consult a professional financial adviser to see if speculation is right for them. No Get Irked contributor is a financial professional of any kind.