Summing Up The Week

This week was particularly spicy with a variety of different news stories causing interesting moves in the market. President-Elect Biden and COVID vaccines caused the markets to rally throughout much of the week, however, the winners weren’t the ones we’ve been used to.

Rather than technology stocks remaining market darlings, many investors and traders rotated into industrial and cyclical plays (think Boeing (BA) and Caterpillar (CAT)) and out of tech plays and stay-at-home plays like Peloton (PTON) and Logitech (LOGI).

Toward the end of the week, the impending tsunami of new COVID cases started to overwhelm the market, though.

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

Market News

President-Elect Biden seeks to unify, not divide

Following the projection that Vice President Joe Biden would easily beat sitting President Donald Trump both in electoral votes and the popular vote, Biden gave an acceptance speech Saturday night acknowledging the importance of unifying the country and being an American President, not a Democratic one, reported CNN.

After four years of vicious political rhetoric, blatant lies and misinformation, and a poorly-managed pandemic response leaving a country tattered and at war with itself, President-Elect Biden acknowledged that now is the time for both sides of the country to unite.

“For all those of you who voted for President Trump, I understand the disappointment tonight; I’ve lost a couple of times myself, but, now, let’s give each other a chance,” he said. “It’s time to put away the harsh rhetoric, lower the temperature, see each other again, listen to each other again; And to make progress we have to stop treating our opponents as enemies – this is the time to heal in America.”

Pfizer announces COVID-19 vaccine with 90% efficacy

On Monday, drug company Pfizer (PFE) announced its coronavirus vaccine was more than 90% effective in preventing Covid-19 for those who had no evidence of previously being effective, reported CNBC. The stock markets roared to the upside as the potential of the end of the pandemic looked like it might become a reality sooner rather than later.

“It is a great day for science – it is a great day for humanity when you realize your vaccine has 90% effectiveness – that’s overwhelming,” said Dr. Albert Bourla, CEO and Chairman of Pfizer. “You understand that the hopes of billions of people and millions of businesses and hundreds of governments that were felt on our shoulders; Now, I think we can see light at the end of the tunnel.”

Scientists warn against vaccine euphoria; Darkest days coming

On Wednesday, epidemiologists, scientists and public health officials warned that the United States has yet to see the most difficult days of the coronavirus outbreak and cautioned against euphoric hopes stemming from the announcement of a vaccine, reported CNBC.

While stock markets rallied on the news of a vaccine, many onlookers forget that the stock market is a forward-predicting instrument, typically reacting to what the outlook 8-9 months out might be, not what the situation will be in the near future. “What America has to understand is that we are about to enter Covid hell,” said Dr. Michael Osterholm, Director of the Center of Infectious Disease Research and Policy at the University of Minnesota. “It is happening.”

In this gloomy outlook, scientists and doctors are aligned. “Unfortunately, the worst days are ahead of us,” said Dr. Ali Mokdad, a professor of global health at the Institute for Health Metrics and Evaluation at the University of Washington. “We are starting from a worse position because we didn’t do a good job in the summer to bring it down and then we see right now a rapid rise in cases, so the surge of fall and winter has started; that’s why the worst days are ahead of us.” 

Weekly jobless claims fell to 709K last week

On Thursday, the Labor Department reported jobless claims totaled 709,000 last week versus the 740,000 expected by Wall Street, reported CNBC. While still gradually declining, more than 21 million Americans are still collecting unemployment benefits.

While the decreasing jobless claims may be a positive sign for the economy, many experts expect to see the trend reverse as we head into colder months and the small restaurants struggling with outdoor seating have to once again close up shop. These economists expect we’ll once again see increasing jobless claims in the coming weeks and months.

To make matters worse, if Congress doesn’t pass a second stimulus bill to serve as a stop-gap measure to allow small business to survive until a vaccine is widely available, economists believe we’ll see a tsunami of small business bankruptcies and increasing unemployment.

Chicago asks residents to cancel Thanksgiving plans

On Thursday, a combination of negative news regarding COVID-19 cumulated when Chicago Mayor Lori Lightfoot asked all residents to cancel Thanksgiving plans and stay at home, reported CNBC.

The news came as the seven-day average of hospitalized people raised by at least 5% in 46 states according to data from the COVID Tracking Project. “We’re piercing the previous records and ICU admissions are going up quickly, as well, with 12,000 people in the ICUs,” said former FDA Commissioner Dr. Scott Gottlieb. “Hospitalizations right now are rising by about 1,600 people a day, but that’s going to continue to increase, as well.”

Gottlieb went on to point out that the outbreak across the U.S. is different now than from earlier points in the pandemic in how the virus is spreading rapidly across the entire U.S. instead of just certain regions or so-called hot spots.

The stock market, which had been rallying throughout the week up until this point, sold off following the repeated bad news about rising COVID-19 cases and their potential effects on local and national economies.

Next Week’s Gameplan

With a vaccine on the horizon, the gameplan changes. I’ve raised a lot of my buy price targets to account for a return to normalcy sometime in the next 8-12 months, but I’m also keeping my eye on the economic devastation laid to waste by the pandemic.

With institutional money rotating from growth into value, a new monkeywrench is thrown into my Trading Plan now that I need to prepare for potential sector-based selloffs rather than systemic market-wide selloffs while also keeping an eye out for negative economic news could slam the entire market.

There also may be opportunities to Sell in Stages to take profits, too. This newfound volatility certainly creates a trader’s market as we continue running toward the end of this tumultuous 2020.

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’s remarkable bull rally continued this week with the crypto once again making an all-new high for 2020 on Friday at $16,491.92. With these kinds of results, the news media has started picking up Bitcoin’s scent which doesn’t always foretell good things for the cryptocurrency space.

The Bullish Case

Bulls continue to point to the fractal pattern of 2017 that has, so far, been repeating exactly as expected. With Bitcoin continually breaking through to make all-new highs for 2020 and showing little signs of slowing down, Bulls believe a new all-time high remains very much in-sight for the crypto with optimistic Bulls suggesting the new all-time high will be made before the end of the year.

The Bearish Case

Bears will point to the media’s coverage of Bitcoin as the end of the party as, many times in the past, media coverage has preceded horrendous selloffs in the space. Even if the coverage doesn’t cause an epic selloff, 20-30% pullbacks are quite normal during a crypto bull run and the biggest we’ve seen since the first high that broke 2019’s was slightly over 10%. Bears believe a substantial correction may be in order even if Bitcoin’s seeking new all-time highs.

Bitcoin Gameplan

— Waiting for a Trade to Form —

After Bitcoin exhibited such strength during its last sell off, stopping just short of -10.50%, I’m using a selloff range of 10.0-10.5% as the target of my first buy rather than relying on 20-30% selloffs. Do I believe we’re in a bull rally that won’t echo the past? No, actually, but my crypto trading strategy is so conservative that I don’t mind starting a little higher and being wrong.

Bitcoin Buying Targets

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

1.025% @ $14,769
1.025% @ $14,091
1.025% @ $13,202
1.025% @ $12,507
1.025% @ $11,478
1.025% @ $10,764
1.025% @ $10,157
2.050% @ $9409
2.050% @ $8889
2.624% @ $8258

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 +327% to $16,491.92 in November 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.