Summing Up The Week

Before I start this week’s Week in Review, I wanted to take a moment to address the horrific events that happened on Wednesday, where pro-Trump extremists performed a siege on the U.S. Capitol and five individuals died.

The acts of the riotous mob, but, perhaps more so, Donald Trump, this petulant man claiming fraud where there was none who spent the last four years lying to the American people, are reprehensible and I believe constitute acts of treason, a crime for which the punishment is death. All those involved must be held accountable for their actions and punished to the full extent of the law.

Whether you are Democrat, Republican, Libertarian or Tea Party makes absolutely no difference – the actions of Trump and his followers were an attack on democracy and the United States of America.

Combine this terrorist attack on our country with morbid new records in daily deaths from the coronavirus, a new more-contagious strain of Covid-19 spreading globally, international lockdowns, and the first report of decreasing job creation in eight months, and many investors may be surprised or even shocked to learn that the markets continued to rally, making new all-time highs.

Jim Cramer of CNBC’s Mad Money may have said it best on the CNBC’s ‘Squawk Box’ show this week, “The people were stunned and individuals were stunned, but the machines don’t get stunned because the machines don’t have a conscience.”

One of the key themes to remember is that the stock market is a future-discounting system. The markets look past all the current events and price in what the general consensus sees happening for the future. So, for the moment, the markets see the pandemic subsiding, the economy reopening, and predictable government leadership taking over for the next four years. That’s optimistic, at least.

With that, let’s take a look at the news that moved the markets this week…

Market News

GOP Senators demand delay of Electoral College results

Despite being nearly two months since the Presidential Election, President Donald Trump, Vice President Mike Pence, and 11 Republican senators argued that the Electoral College should delay certification of the election results, once again citing unfounded allegations of fraud and irregularities in the 2020 election for which they provided no evidence and which have been rejected repeatedly by courts around the country, reported CNBC over the weekend.

Along with many pundits believing the attempt would hold no legal weight, even Republican colleagues like Senator Mitt Romney of Utah criticized the effort in  statement released Saturday night, “My fellow Senator Ted Cruz and the co-signers of his statement argue that rejection of electors or an election audit directed by Congress would restore trust in the election. Nonsense.”

“This argument ignores the widely perceived reality that Congress is an overwhelmingly partisan body; the American people wisely place greater trust in the Federal courts where judges serve for the life,” he continued. “Members of Congress who would substitute their own partisan judgment for that of the courts do not enhance public trust, they imperil it.”

Romney added, “I could never have imagined seeing these things in the greatest democracy in the world. Has ambition so eclipsed principle?”

Even senators from extremely conservative states like Alaska opposed the measure. Senator Lisa Murkowski, R-Alaska, said in a statement that she would vote to count the Electoral College Votes. “I swore an oath to support and defend the Constitution of the United States and that is what I will do January 6 – just as I strive to do every day as I serve the people of Alaska,” she said.

Private Payrolls post first drop since April

On Wednesday, ADP reported that private payrolls declined by 123,000 in December versus the Dow Jones estimate for a gain of 60,000, reported CNBC.

While, normally, a negative news catalyst of this kind would cause a response in the markets, between the Georgia runoff election and the Congressional confirmation of the election, this news went largely unnoticed in the markets.

For the long term, however, this negative figure could indicate that the job market and U.S. economy could have a tougher time recovering than many economists are predicting.

Pro-Trump Rioters Interrupt Electoral Certification

On Wednesday, Vice President Mike Pence rejected Trump’s call to overturn the election results, surprising many who expected Pence to support the President, reported CNBC.

In a letter, Pence said that he did not believe, as Trump has claimed, that a vice president has the unilateral power to reject Electoral Votes for a candidate: “It is my considered judgement that my oath to support and defend the Constitution constrains me from claiming unilateral authority to determine which electoral votes should be counted and which should not.”

Shortly thereafter, Trump supporters rioted outside the U.S. Capitol Complex, requiring the evacuation of occupants as Capitol Police fended off the pro-Trump protesters, reported CNN. The rioters sieged the building and eventually broke in, taking part in acts of vandalism and raiding Congressional offices.

The actions of rioters disgusted Republicans and Democrats alike going so far as inciting some such as a U.S. trade group to call on Vice President Pence to invoke the 25th Amendment of the Constitution to remove President Donald Trump from office, reported CNBC. Jay Timmons, the head of the National Association of Manufacturers which represents 14,000 U.S. companies, was once executive director of the National Republican Senatorial Committee.

Congress reconvened later Wednesday evening, and, finally, early Thursday morning Congress confirmed Biden as the next president with Trump saying he was willing to allow an “orderly transition” of power, reported CNBC.

Both social networks Facebook (FB) and Twitter (TWTR) came under fire Wednesday, with many accusing the companies’ lax policies toward Trump’s lies posted to their networks as contributing to the attempted overthrow of the government by Trump’s followers. On Thursday, Mark Zuckerberg, CEO of Facebook, announced the network would block Trump from posting for the remainder of his term, at minimum, reported CNBC.

Also on Thursday, Acting U.S. Attorney Michael Sherwin said the Department of Justice will consider lodging criminal charges against anyone who played a role in the riot, including Donald Trump, reported CNBC. “I don’t want to sound like a broken record – we’re looking at all actors here,” said Sherwin. “Anyone who had a role and where the evidence fits the crime.” 

Democrats take control of the Senate

In the midst of the chaos in Washington D.C. on Wednesday, the Georgia runoff election elected Democrats Jon Osoff and Raphael Warnock as the state’s senators, reported CNN.

Political pundits believe that due to the new majority, Democrats will implement greater amounts of stimulus as well as potentially pass large infrastructure bills in an effort to restore and restart the economy.

Economy sees job losses for first time in 8 months

The Labor Department reported nonfarm payrolls fell by 140,000 in December versus an expected 50,000 gain on Friday, reported CNBC. Unsurprisingly, the hospitality sector got hit the hardest with bars and restaurants suffering the brunt of the losses. Unemployment held steady at 6.7% (although, as always, I object to the reliability and validity of the methodology used to calculate this particular unemploymnet figure).

Despite the bad news, the level of permanent job losses actually fell for the month which some economists take as an encouraging sign as the country prepares to return to norrmalcy both in terms of the virus but also on the political stage.

Next Week’s Gameplan

Between the promise of more stimulus and the Federal Reserve backstop, the markets continue rocketing to new highs. While I am raising my buying price targets for my positions, I remain vigilant and prepared for a potentially-devastating pullback.

The promises that the pandemic may actually end in 2021 and that the global economy could recover lead to a rallying stock markets, however, we must always watch for potential negative catalysts – both those we expect, but, more importantly those we don’t – as the indexes have never been so overvalued in history.

Be careful, make a Trading Plan and stick to it.

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 just didn’t quit since New Year’s Eve, crashing through the $30,000 mark and setting a new all-time high at $34,810.00 on Saturday, +17.82% gain on last week’s all-time high of $29,545.00 (which, you may recall, also blew my mind at the time).

Bitcoin pulled back slightly over -20% on Monday, dropping to $27,678.00 before finding support, making that point our new weekly and monthly low. From there, Bitcoin bounced quickly, rallying to a series of new all-time highs, the highest made on Thursday at $41,986.37, an astounding +42.10% higher than last week’s high.

The Bullish Case

Bulls adhere to their 2017 fractal pattern repetition theory with some having price targets as high as $100,000 for the current bull rally, expecting Bitcoin to hit that price sometime in 2021. More realistic price targets are somewhere in the $50,000 range, however, given Bitcoin’s movements up until this point, any price target may be reasonable given the volatility of the space.

The Bearish Case

Using the same “history repeats itself” logic of the Bulls, Bears concede that they were incorrect about the current bull rally, however, they point to Bitcoin’s tendency to sell off 60-90% following parabolic moves of this kind and warn that a pullback to the low $4,000s is very possible following this move with a pullback of 50% to $20k as pretty much a virtual certainty.

Bitcoin Gameplan

** No new position yet **

With Bitcoin at these extraordinary heights, it’s time for me to pull back, sit on my hands, grab the popcorn, and watch. The higher the crypto heads, the more I’m reminded of the parabolic moves of 2017 ending in a crash of nearly 90% in 2018. That was only three years ago, after all.

Although many crypto enthusiasts continue to claim “this time is different,” those words are typically the death knell for investors as Bitcoin has done moves of this magnitude several times in its short 12-year life and the resulting bear move is always epic.

Accordingly, my first buy is both very, very small and much lower from here. If Bitcoin doesn’t pull back, I won’t feel any FOMO as I will continue to enjoy watching my accumulated crypto increase in value in cold wallets, but I will not be putting more money to work in the space.

Bitcoin Buying Targets

Using Moving Averages and supporting trend-lines as guides, here’s my plan for my next ten (10) buying quantities and prices:

0.519% @ $28,752
0.445% @ $24,419
0.400% @ $21,938
0.341% @ $18,856
0.305% @ $16,837
0.274% @ $15,014
0.310% @ $12,671
0.364% @ $11,727
0.660% @ $10,337
0.970% @ $9,871

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 crashed nearly -63% to a low of $3858.00, mostly in 24 hours.
• Then, Bitcoin rallied +988% to a new all-time high of $41,986.37 in January 2021.

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 that 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.