Summing Up The Week

While it can be exciting to see the markets rally repeatedly, most advisors will caution investors when the markets become irrationally exuberant on the same news story. While this week’s vaccine announcement is from a second company, it’s basically the same news as Pfizer’s (PFE) announcement last week. 

While the rally cooled off later in the week due to tragic news about the ever-increasing number of COVID cases and rising death tallies, we’re still looking at a market within a stone’s throw of all-time highs in the middle of a pandemic, a recession, and a potential wave of unemployed citizens and bankrupt businesses.

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

Market News

Moderna says its vaccine is more than 94% effective

On Monday, biopharmaceutical company, Moderna (MRNA), announced its COVID-19 vaccine is more than 94% effective, reported CNBC. CEO Stephan Bancel called the drug a “game changer.”

The analysis evaluated 95 confirmed Covid-19 infections among the trial’s 30,000 participants. 90 cases of Covid-19 were observed in the placebo group (the group that did not receive the drug) compared to five cases observed in the group that received a two-dose vaccine. The result is an estimated vaccine efficacy of 94.5%.

The markets rallied once again, similar to how they performed following Pfizer’s (PFE) vaccine announcement last week with cyclicals and return-to-normal plays seeing more action than growth, technology, and stay-at-home plays.

Not to be outdone, later in the week Pfizer (PFE) announced that upon final review of its phase 3 data, its vaccine is 95% effective, reported CNBC.

FAA clears Boeing 737 Max to fly again

After grounding Boeing’s (BA) 737 Max airliner 20 months ago in March 2019 due to two deadly crashes, the Federal Aviation Administration cleared Boeing’s 737 Max for flight on Wednesday, reported CNBC.

FAA Administrator Steve Dickson said a repeat of the conditions in both crashes is now “impossible” thanks to design and training changes.  Boeing is one of the United States’ largest exporters and its most popular model’s inability to fly has dragged both on the stock but also the country’s GDP as a whole.

Airlines still have to train pilots and remove aircraft from storage if they had 737 Maxes in their fleets during the grounding. American Airlines (AAL) plans to be the first U.S. airline to commercial service at the end of December with United Airlines (UAL) and Southwest Airlines (LUV) expected to fly the Max sometime in 2021.

Following the news, Boeing’s stock popped and added at least 90 points to the Dow Jones Industrial Average (DJI).

U.S. in an ‘absolutely dangerous situation’ as COVID worsens

The United States is in the midst of an “absolutely dangerous situation” as the coronavirus outbreak continues to worse, said Admiral Brett Giroir, assistant secretary of health, on Wednesday reported CNBC.

“This is not crying wolf – this is the worst rate of rise in cases that we’ve seen in the pandemic in the United States and right now there’s no sign of flattening,” Giroir continued. “We all have to be incredibly concerned, we all have to be diligent, [and] we have to make clear choices to wear our masks, to physically distance, and try to make a better choice every single day about where you’re going to gather, how you’re going to gather, and how you’re going to protect the vulnerable.”

Giror’s comments followed a report of 161,900 new cases of Covid-19 in the United States on Tuesday, bringing the seven-day average of new cases up to more than 157,300 per day.

U.S. jobless claims total 742K vs. 710K estimate

The Labor Department reported 742,000 new unemployment claims for the past week compared with 710,000 estimated from the Dow Jones economist survey, reported CNBC on Thursday.

The higher numbers also represent an acceleration from the previous week’s 709,000, potentially suggesting that the job market is struggling as we head into the winter months. If restaurants and other businesses in the hospitality sector need to shut down due to statewide COVID restrictions, the coming weeks and months could show even more weakness in the jobs economy.

Treasury secretary cuts Fed lending power

On Thursday evening, Treasury Secretary Steve Mnuchin made the decision to allow several of the Federal Reserve Bank’s emergency lending program to expire on December 31, a move that will dramatically reduce the central bank’s ability to backstop the financial system, reported CNBC.

In an unusual statement, the Fed made public its disagreement with the decision, “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

On Friday, Mnuchin tried to downplay the department’s decision to pull the plug on several Federal Reserve programs, saying there’s still plenty of money around to provide funding where it needed, reported CNBC.

“This was a very simple thing – we’re following the intent of Congress,” Mnuchin told CNBC’s Jim Cramer during a “Squawk on the Street” interview. “This is not a political issue. This is very simple.”

Mnuchin pointed out there’s up to $800 billion in potential firepower that can be deployed if needed from the Exchange Stabilization Fund and elsewhere. Although, he also added that “we don’t need to buy more corporate bonds – the municipal market is working; people are able to borrow lots of money in the markets.” 

Next Week’s Gameplan

With a potential tsunami of small business bankruptcies, increasing unemployment into the winter, and potentially thousands of evictions once moratoriums end, I see far too many potential negative catalysts to become too enthusiastic about the market’s endless bullishness.

I believe the risk is most certainly to the downside so I used this week’s rally to dramatically lighten up in several of my accounts. I’m never fully out of the markets nor do I ever short the markets, but at all-time highs, my portfolios are definitely feeling a little vertigo.

I will continue to Sell in Stages as this Selling Season seems as though it may carry us through the end of 2020. Should we see a selloff, I’ll pick my entries very carefully as the amount of downside could be more than it appears.

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 didn’t stop climbing this week, making more than one new 2020 highs, its most recent just Friday morning at $18,830.30, just $1,000 off its all-time high made in 2017 at $19,891.99.

During its run since last week, Bitcoin’s biggest pullback was just -4.75%, quite possibly the least volatile bull run the crypto has seen in years. The week’s low is now $15,708.24 and the month’s low is $13,215.00.

For this week’s chart, I pulled the timeline way back to a Daily chart all the way to Bitcoin’s All-Time-High in November 2017 of $19,891.99 (shown as the large solid dark orange line) just so viewers can see how remarkable this year’s bull run is. However, the parabolic move in this chart definitely cannot be argued… that’s a lot of up momentum with almost no retracement at all.

The Bullish Case

Bulls continue to stand their ground that the repetition of the 2017 fractal pattern is intact with expectations that not only will Bitcoin crash through 2017’s all-time high, but that the crypto has much, much more room to run after cracking that ceiling.

The Bearish Case

Bears remain skeptical that Bitcoin has the fuel left to break through 2017’s all-time high without a substantial giveback. At this point, Bitcoin has only pulled back a little more than 10% once in the entire run from under $10k, leading many Bears to state that a 30-65% pullback may very well be in the cards before Bitcoin regains the power to continue higher from here.

Bitcoin Gameplan

— Waiting for a Trade to Form —

Whereas I may have been feeling FOMO last week, that’s no longer the case. At this point, I’m in awe of Bitcoin’s parabolic move with absolutely no retracement. Last week, I had raised my first buy to 10% less than the weekly high, however, this week, I’ve reverted back to using key lines of support and resistance combined with basic simple moving averages.

When Bitcoin does pullback to regroup, I am far more bearish – I believe the pullback will be far in excess of 10%, potentially 30-40%, so I’m using insanely small quantities to build a position from here.

If Bitcoin doesn’t have the strength to break through the all-time highs, we could potentially see Bitcoin retreat into a Bear Market for months before making another attempt. I’m not saying any scenario is likely (nothing ever is with cryptocurrency), but I am always prepared for any eventuality.

Bitcoin Buying Targets

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

0.351% @ $16,018
0.372% @ $14,427
0.413% @ $14,058
0.517% @ $13,568
0.620% @ $12,927
0.723% @ $11,419
0.827% @ $10,878
0.930% @ $10,188
1.447% @ $9438
2.067% @ $8918

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 +388% to $18,830.30 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.