Summing Up The Week

Whew… what a week. After Trump’s COVID diagnosis did little to affect the market action – stocks rose on Monday – Trump decided to bail on a second stimulus package and sent the market into a tailspin Tuesday by announcing there would be no more negotiations until after the election.

After seeing the immediate plunge, Trump flip-flopped and tweeted he would entertain negotiations. Mnuchin and Pelosi failed to reach a deal despite negotiating all week, however, the possibility was enough to drive stocks higher.

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

Market News

Trump & COVID created little market volatility

After multiple press conferences on his health after being diagnosed with the coronavirus COVID-19, medical experts believed President Trump’s condition was more concerning than his team described on Sunday, reported CNBC.

Former FDA Commissioner Dr. Scott Gottlieb pointed to the use of dexamethasone, a steroid reserved for patients with severe cases, as a major clue to the president’s actual condition. “They threw the kitchen sink at POUTS, but they saw signs he was decompensating,” Gottlieb told CNBC. “The dexamethsone was a key disclosure; a lot of us were speculating that but to know that now is a key fact.”

The drug is potentially harmful for patients who take it too early in their battle with COVID-19 because it can suppress the immune system.

On Monday, the president’s doctors indicated that Trump was recovering well from COVID. The positive report combined with hopes of potential government stimulus caused the markets to pop on Monday. Trump returned to the White House Monday evening, however experts warned the second week of COVID infection is often worse than the first, reported CNBC.

Also on Monday, the Center for Disease Control (CDC) revised guidance to recognize the coronavirus does spread through airborne transmission, reported CNBC. Its reports cited “limited, uncommon circumstances” in which people with the virus infected others who were more than 6 feet away.

Fed Chair Powell calls for more help from Congress

On Tuesday, Federal Reserve Chairman Jerome Powell called for continued aggressive fiscal and monetary stimulus for an economic recovery that he said still has a “long way to go” and that “the risks of overdoing it seem, for now, to be smaller,” reported CNBC.

A Chairman who was initially quite hawkish toward Fed policy when he signed on just a few years ago has become incredibly dovish since the pandemic, indicating exactly how serious the country’s current economic condition actually is.

Unfortunately, his comments were made following continued failure in Congress to make a deal for a second stimulus package. On Monday, House Speaker Nancy Pelosi and Treasury Steven Mnuchin spoke for an hour but made no progress toward making a deal, reported CNBC.

Trump calls off stimulus talks; Changes mind later

In an unusual direct correlation, both the stock and cryptocurrency markets sold off on Tuesday after Trump said he’s calling off stimulus negotiations with Democrats “until after the election,” reported CNBC.

The markets, which had been relatively flat throughout Tuesday after a rally on Monday, sold off dramatically immediately following Trump’s announcement that any additional assistance for the American economy would have to wait a month.

While a correlation between Bitcoin and the stock market has been demonstrated previously, never had the two been so closely connected as Bitcoin directly mirrored the S&P 500 at the precise time of Trump’s announcement.

Tuesday night, the market futures rebounded when Trump reversed his decision on coronavirus relief talks, reported CNBC. After the seemingly baffling move of shutting stimulus relief talks just weeks before the election, Trump flip-flopped and urged Congress to approve a series of coronavirus relief measures that he would sign, including a new round of $1,200 direct stimulus checks.

He later tweeted that he would also approve a bill for $25 billion in airline payroll support and $135 billion for a second round of PPP for small business. 

Jobless claims worse than expected

Thursday’s jobs report showed first-time claims for unemployment benefits totaled 840,000 last week versus the 825,000 estimated by Wall Street, reported CNBC. Combined with the fact that 25.5 million workers continue to collect some form of benefits, economists believe the economy won’t recover at any sort of reasonable pace without additional stimulus packages.

Pelosi rejects smaller airline aid package

On Thursday, Nancy Pelosi told reporters there will not be a stand-alone stimulus bill for airlines without a bigger aid package, reported CNBC. Previously, Trump had pushed for the airline aid.

The market maintained a pop on Thursday after a substantial return from Tuesday’s selloff on Wednesday despite the negative stimulus news.

Next Week’s Gameplan

I certainly don’t expect to see the market become less volatile as we approach the presidential election, so it’s time to be ready for any opportunities that may present themselves – Selling in Stages on the way up or Buying in Stages during a selloff.

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 immediately sold off on Tuesday following Trump’s announcement that he was calling off stimulus negotiations until after the election. While Bitcoin and the S&P 500 have been correlated throughout 2020, I personally haven’t witnessed such a direct link as both markets sold off in tandem. When Trump rescinded his announcement later Tuesday night, Bitcoin recovered along with the stock market.

On Thursday, payment-processor Square (SQ) announced that it had purchased $50 million in Bitcoin as part of its investment arm which led to further gains for the cryptocurrency with the rally taking the price over $11,000 on Friday morning.

The Bullish Case

Bulls love it when positive news catalysts drive Bitcoin’s price higher because the action indicates further widespread adoption and widespread adoption equals higher prices. Between Square’s announcement and the unease in the global economy, Bulls believe Bitcoin will head higher from here.

The Bearish Case

Bears concede that the news catalysts this week favored the Bitcoin Bulls, however, Bearish analysts point to Bitcoin’s inability to break $11,179.90 – the current weekly high – shows a lot of resistance to further upside movement. Bears believe Bitcoin will test the new weekly low of $10,363.76 set last week at the very least, followed by a retest of the $10,000 mark and potentially lower.

Bitcoin Gameplan

Current Allocation: 1.782% (unchanged from last week)
Current Per-Coin Price: $10,608.48 (unchanged from last week)
Current Status: +4.344%

While the past week’s positive news catalyst have sparked a nice rally, it’s not enough to break the crypto out of its current trading range, bouncing between $9800-$11,200. My gameplan remains the same – sitting on my hands until we see a real breakout from this range, either bullish or bearish.

Bitcoin Buying Targets

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

0.891% @ $9888
0.891% @ $9541
0.891% @ $9109
1.336% @ $8579
1.336% @ $7823
1.336% @ $7569
1.782% @ $7038
2.227% @ $6539
2.851% @ $6122
6.860% @ $5454

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 fully 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. If a speculator isn’t confident in the space, the moves will cause mistakes to be made.

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.