Summing Up The Week

With record daily COVID cases both in the United States and abroad combined with no stimulus package in sight perhaps until 2021, the markets started to acknowledge the reality of the economy this week and sold off substantially.

In fact, Wednesday’s selloff was the worst day since March and Friday’s continuation locked in the week as the worst week since March, too.

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

Market News

Record COVID cases & no stimulus rocks markets

The markets kicked off the week on Monday with a substantial selloff following reports of a record average daily high of 68,767 new COVID-19 cases over the weekend with some cities setting restrictions, reported CNBC. 

Despite medical professionals warning of potential exponential growth in new COVID cases in the fall due to more indoor activity combined with the seasonal influenza, the markets seemed to not have priced the potential of the situation as the S&P 500 and Nasdaq each fell more than 2% on Monday alone.

Pundits and advisers remain concerned about what new city or state restrictions, even potential lockdowns, could do both local economies and the U.S. economy as a whole.

COVID-19 herd immunity a pipe dream?

Researchers from Imperial College London released a study showing coronavirus antibodies decline after infection, raising question about herd immunity, reported CNBC on Tuesday.

Researchers screened 365,000 people in England over three rounds of testing between June 20 and September 28. Using analysis of finger-prick tests carried out at home, researchers found that rather than building immunity over time, the number of people with antibodies that can fight COVID-19 declined 26% over the study period.

The findings suggest that there may be a decline in the level of population immunity in the months following the first wave of the epidemic, potentially dashing the hopes of those calling for a controversial herd immunity response strategy.

The result? Without mask-wearing and social distancing, further local, state, and even potentially nationwide lockdowns may be in the future of the global economy.

COVID hospitalizations surge in U.S., Globally

On Wednesday, three dozen states reported that the average number of people currently hospitalized with Covid-19 rose by at least 5% over the past week, reported CNBC. This grim news, combined with potential lockdowns facing much of Europe, caused investors and traders to panic and the markets sold off accordingly.

“We are at another critical point in the pandemic response,” said Admiral Brett Giroir, Assistant Secretary of Health who leads the U.S.’s testing effort. “We can control the virus by following public health measures like social distancing, mask wearing, avoiding crowded gatherings and the frequent washing of hands.”

Another top health official warned that the country is at a “critical point” in its ongoing fight against the pandemic as we continue into colder, high-risk months.

U.S. GDP shows Q3 growth but still in the red

Third quarter growth in the U.S.’s Gross Domestic Product (GDP) bounced back at a 32% pace after the second quarter slump, but economists say the economy is coming off a smaller base and is still in a hole, reported CNBC on Thursday.

“We will have recovered about 2/3 of the GDP we lost in the recession,” said Mark Zandi, chief economist at Moody’s Analytics. “I think the economy is moving very sideways.” Diane Swonk, chief economist at Grant Thornton, agreed, “You’re still in a deep hole; the hole in the labor market is deeper than GDP.”

To make matters worse, now that Congress has entered recess for the election, chances for a stimulus before 2021 are slim. “Lame Duck” governments, incumbents voted out following an election serving between election day and the new year when the new congress convenes, rarely pass major legislation meaning a second economic stimulus package may have to wait until as late as March 2021.

Worse still, the Federal Reserve is running out of ways to help the economy, according to CNBC. The Fed has relied on loose policy and lending to boost the market, however, without monetary stimulus from the government, the options to further lift the economy are limited.

“They just don’t have much room to maneuver with regard to monetary policy,” said Zandi. “I really don’t see what more they can do – that’s why they’ve been so explicit in telling fiscal policymakers to do more, because they know they can’t help.” 

Jobless claims fall to 751K, lowest level since March

Initial weekly U.S. jobless claims came in at 751,000 last week, down from the previous week’s 791,000 and the lowest level since March 14, reported CNBC on Thursday. Economists had expected claims to come in at 778,000 so Thursday’s number was a slight beat.

“We had expected that the steep decline we saw in claims last week would be too big to repeat, but downside momentum in claims remains intact,” wrote Thomas Simons, an economist at Jeffries. “The question going forward is going to be whether a surge in COVID cases and renewed measures aimed at containing the virus will lead to another spike in claims in the coming weeks.”

Big Tech = Big Disappointment

Facebook (FB), Amazon (AMZN), Netflix (NFLX), Alphabet/Google (GOOG), Microsoft (MSFT) and Apple (AAPL) are called “Big Tech” given their market caps in the trillions. When they move, the market moves.

On Thursday after the bell, four of them – Facebook, Amazon, Alphabet, and Apple – reported earnings and only Alphabet crushed expectations (see this CNBC story for more details). With three of the four returning unimpressive results, Big Tech dragged the markets down on Friday causing the worst week in the markets since the March selloff.

Next Week’s Gameplan

The softening markets have led to me nibbling here and there at specific positions that I don’t mind buying at expensive levels, however, I’m holding any real buying in check until we see lower lows.

Next week is the U.S. election and analysts expect to see extreme volatility ahead. While Monday and Tuesday will likely be weak days for the markets, the outlook is mixed after election results start rolling in Tuesday night. Some analysts believe we’ll see a relief rally no matter what the results say, while others believe any contested election results will cause a selloff. Historically, November has always been a rocky month for the markets with 2018 seeing an epic selloff.

We’re definitely out of Selling Season at this point. Hopefully, we all have cash on the sidelines. If you haven’t already, make a Trading Plan and a Shopping List to make sure you’re keeping an eye on the positions you’d like to open or add to at lower levels from here.

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 squeaked in another new annual high for 2020 at $13,361.00 on Sunday before pulling back slightly to find support around $13,000. On Monday morning, it started to exhibit weakness in sympathy with the wider stock market, dropping a little over -4% from its high to nearly $12,800 before finding support.

However, Bitcoin once again bounced, breaking through and setting another new 2020 high at $13,863.87 on Tuesday, narrowly missing breaking 2019’s high by a few dollars before dropping 7% on Wednesday to begin consolidation between $12,700 (the weekly low) and $13,800.

The Bullish Case

Bulls continue to argue that economic uncertainty globally combined with positive news catalysts means Bitcoin has entered a new bull market similar to the one seen in 2017. For Bulls, Bitcoin’s pullback and current consolidation is simply the crypto resting before its next leg higher.

The Bearish Case

Given that 2019’s high was $13,868.44, Bears will point out that Bitcoin’s inability to break last year’s high and show follow-through is a bad sign, indicating that the current bull rally may have lost its edge for the moment, at least. Using history as a guide, Bears will point to previous rallies where the crypto pulled back 20-30% from its highs before resuming the rally, meaning a pullback to the $11,000-$11,100, at minimum, is likely with a greater pullback to $9700-$9800 as very possible.

Bitcoin Gameplan *Trade Closed, +18.35%*

Current Allocation: N/A (No active trade)
Current Per-Coin Price: N/A
Current Profit/Loss Status: N/A

When Bitcoin started consolidating on Monday after setting another new 2020 high on Sunday, I decided to use stop-limit loss orders to close out the position. My position closed when Bitcoin pulled back to $12,800 on Monday. 

This trade started with an opening buy at $11,105.85 on August 2 and a second buy at $10,057.40 on September 3 giving the position an average $10,581.63 per-coin price. By Selling in Stages on the way up, My average selling price was $12,523.36 with my lowest sale at $12,271.60 and my highest sale at $13,018.00 resulting in an 18.35% gain in less than three months or an annualized gain of more than 73.4%. Not too shabby. 

As always, I keep all profits in the crypto traded so this trade added 3.31% additional Bitcoin to my growing stash, offering me upside exposure with zero capital risk at the current time.

From here, I’m siding with the Bearish outlook as Bitcoin has always pulled back a minimum of 20% from its new high, so I’m using a 15-20% target as my starting point for a new trade and will (try to) patiently wait for a pullback of that magnitude before opening a new trade.
  

Bitcoin Buying Targets

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

0.904% @ $11,539
0.904% @ $10,912
0.904% @ $10,092
1.356% @ $9343
1.356% @ $8836
1.582% @ $8309
1.582% @ $8117
1.808% @ $7834
2.404% @ $6769
8.930% @ $5617

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 +259% to $13,863.87 in October 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.