Summing Up The Week

Between a cyberattack knocking out the East Coast fuel pipeline and surprising inflation reports, it was a wild week in the markets with several epic selloffs before a relief rally into the end of the week.

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

Market News

Cyberattack knocks 45% of East Coast fuel network offline

Over the weekend, ransomware was used in a cyberattack on Colonial Pipeine and knocked the East Coast fuel supplier offline, reported CNBC.

Colonial Pipeline transports 45% of the East Coast’s fuel supply, approximately 2.5 million barrels a day of gasoline, diesel, jet fuel, and other refined products through 5,500 miles (8,850km) of pipelines.

Colonial first learned of the attack on Friday and took systems offline to contain the threat, halting operations. The company engaged a third-party cybersecurity firm to launch an investigation and contacted law enforcement and other federal agencies.

Colonial did not provide further details or say for how long its pipelines would be shut down.

Inflation is here: CPI leaps 4.2%!

On Wednesday, the Consumer Price Index (CPI) which the Federal Reserve uses to measure inflation showed an increase of 4.2% in April versus 3.6% expected, reported CNBC. The CPI measures a basket of goods including energy and housing costs.

Economists state that a large cause of the acceleration came from base effects since a year ago, the economy was hit with the worst of the pandemic and inflation was unusually low.

So far, the Federal Reserve Bank is sticking to their gameplan, dismissing the current round of inflation as transitory. “As the cyclically-sensitive components of CPI are still rising at a modest pace, we doubt this report will change the view of officials that inflationary pressures are ‘largely transitory’,” wrote Michael Pearce, senior U.S. economist at Capital Economics. “It’s just that [it’s] a lot more ‘transitory’ than they were expecting.”

Inflation continues: PPI jumps 6.2%!

On Thursday, the Producer Price Index (PPI) spiked 6.2% for the year ending April, the biggest increase since the Bureau of Labor Statistics started tracking the data in 2010, reported CNBC.

The Producer Price Index measures the cost of materials for companies to produce their products including everything from steel to meat. Core PPI excludes volatile items like food, energy, and trade services, and it rose 0.7% between March and April as well as 3.8% year-over-year.

Whereas Wednesday’s CPI report caused a significant market selloff, Thursday saw a short reprieve as investors bought the dip.

Retail sales drop 0.8% in April vs March

On Friday, the Retail Sales Report showed a drop of -0.8% in April versus expectations of a +0.8% increase, reported MarketWatch. Given that the U.S. economy is consumer-dependent in the best of times, having a lower retail sales number when much of the country continues to remain closed should have been bad news, however, the markets rallied.

Rather than focusing on the news, many investors looked at the substantial selloffs earlier in the week as an opportunity to buy stocks at lower prices, buying up bargains as we headed into the weekend.

Next Week’s Gameplan

As long as the Federal Reserve has the backs of the market, investors are using any dips as buying opportunities. Given that I’m a long-term horizon with a very long time horizon, I use the dips to target specific positions, such as the semiconductors, which are substantially oversold.

As always, I always remain cautious Buying in Stages while also Keeping Cash on the Sidelines just in case the next selloff is more epic and less garden-variety. 

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

Elon, Elon, Elon…

It’s likely you’ve heard a lot about the small altcoin, Dogecoin (DOGE), over the past few weeks, a meme coin created intentionally as a joke to mock how easy it is to create cryptocurrencies. A series of events, including Tesla’s (TSLA) CEO Elon Musk’s tweets, caused the coin to rocket +12,000% since the beginning of 2021, all culminating with Musk’s appearance on Saturday Night Live (SNL) on May 8.

And… that was it. DOGE sold off dramatically following Musk’s appearance, and with no real catalysts on the horizon, I fully expect it to drop even further. DOGE serves as a cautionary tale about any investment, but particularly the crypto space, it’s safer to stick to the “Best-in-Breed” names, the leaders in the sector, than it is to work your way too far down the food chain into less savory names.

However, Elon wasn’t satisfied attacking the crypto space during SNL.

On Wednesday evening, Elon suddenly announced Tesla would no longer accept Bitcoin for transactions, a complete about-face on Musk’s previous acceptance of the space, tweeting, “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment.”

As a result, the entire cryptocurrency space sold off dramatically, with Bitcoin dropping to $46,000 on Coinbase, and, in an odd arbitrage situation, dropping an additional -$1,000 to a low of $45,000 on Gemini.

Not satisfied there, Elon then tweeted “DOGE” on Thursday night, causing the fledgling altcoin to rocket higher again. Musk claims to be working with the developers of Dogecoin in order to create a more efficient transaction system that will have less negative effects on the environment and could be legitimately used as a currency in the future.

The Bullish Case

Bulls say this pullback was expect and is key, as Bitcoin pulled back to a very specific support EMA (the 21-Week), a move it historically does every 14 weeks but hadn’t done in 38 weeks. Now that this substantial pullback has happened, Bulls believe Bitcoin will move higher from here.

The Bearish Case

Bears believe the increasing amount of FUD (Fear Uncertainty and Doubt) indicates that a new Crypto Winter is on the horizon, warning that the past week’s pullback is only indicative of what’s to come.

Bitcoin Gameplan

Current Allocation: 2.170% (-1.308% since last week)
Current Per-Coin Price: $49,789.29 (-10.178% since last week)
Current Profit/Loss Status: +2.043% (-1.952% since last week)

Buying and Selling in Stages

Following Bitcoin’s bounce last weekend, I used stop-loss limit orders to lock in some gains on Saturday with a sell order filling at $58,797.36. The order reduced my per-coin cost -7.325% from $55,431.08 to $51,370.52. My allocation was reduced -2.135% from 3.478% to 1.343%.

Wednesday’s selloff following Elon Musk’s tweets triggered multiple buy orders which filled at an average price of $47,500.31, lowering my per-coin cost -3.078% from $51,370.52 to $49,789.29 and raising my allocation +0.828% from 1.343% to 2.171%.

Bitcoin Buying Targets

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

0.434% @ $43,846
0.434% @ $41,854
0.434% @ $38,888
0.434% @ $34,261
0.512% @ $26,985
1.445% @ $22,280
3.047% @ $16,108
5.137% @ $11,156
4.829% @ $9,112
6.936% @ $7,327

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 some of Bitcoin’s price movements over the past couple of years:

• In 2017, Bitcoin rose +2,707% from its January low of $734.64 to make an all-time high of $19,891.99 in December.
• 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 crashed -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.
• Later in January, Bitcoin dropped -32% to a low of $28,732.00.
• In February 2021, Bitcoin rallied +103% to a new all-time high of $58,367.00.
• Later in February, Bitcoin dropped -26% to a low of $43,016.00.
• In March 2021, Bitcoin rallied +44% to a new all-time high of $61,788.45.
• Later in March, Bitcoin dropped -19% to a low of $50,305.00.
• In April 2021, Bitcoin rallied +29% to a new all-time high of $64,896.75.
• In May, Bitcoin dropped -29% to a low of $46,000.00.

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.