Summing Up The Week

The markets shook off last week’s news of the Fed recognizing inflation in a big week, rallying to make all new highs on all of the indices – the S&P 500, Dow Jones Industrial Average, and the NASDAQ.

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

Market News

May existing home sales drop for 4th straight month

On Tuesday, the National Association of Realtors (NAR) announced existing home sales dropped 0.9% in May due to affordability preventing new buyers from buying homes, reported CNBC. Sales were 44.6% higher in May 2020, however that comparison has to take the pandemic into account with the great exodus from cities to suburbs.

“Sales are essentially returning towards pre-pandemic activity,” noted Lawrence Yun, Chief Economist for NAR. “Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market.”

Fed Chair says 1970s-style inflation “very, very unlikely”

While presenting to Congress on Tuesday, Federal Reserve Chairman Jerome Powell said the risk of 1970s-style hyperinflation is “verry, verry unlikely” because of the Fed’s commitment to price stability, reported CNBC.

For those (like myself) too young to remember the inflation of the 1970s, prices surged as the Federal Reserve struggled to keep it under control until Chair Paul Volker raised rates as high as nearly 20% before being able to break its back. Many economists are concerned that a similar inflationary environment could happen today due to the government stimulus programs.

“What we’re seeing now, we believe, is inflation in particular categories of goods and services that are being directly affected by this unique historical event that none of us have ever lived through before,” said Powell. He pledged that the Fed would remain vigilant in its role.

New weekly jobless claims total 411K

On Thursday, the Labor Department reported 411,000 initial jobless claims for last week, once again exceeding the 380,000 estimate by economists, reported CNBC.

“Claims are noisy and the weekly season adjustments are unrelaible,” wrote Ian Shepherson, Chief Economist at Pantheon Macroeconomics. “We expect new lows for initial claims in July; letting people go in increasing numbers now makes no sense as the economy rebounds.”

On the plus side, continuing claims (which lags a week behind initial jobless claims) have started to decline, down 144,000 to 3.39 million.

Core personal consumption increases 3.4% from year ago

On Friday, the Commerce Department reported that the Core Personal Consumption Expenditures Price Index rose 3.4% from a year ago, reported CNBC. The indicator measures the pace of price increases across a number of common costs such as food and energy.

Economists are taking this figure with a grain of salt, however, as year-over-year comparisons are skewed as the majority of Americans were still very much in lockdown due to the Covid-19 pandemic in May 2020.

Next Week’s Gameplan

Summer can be a volatile time thanks to many of the financial professionals taking long vacations. I did add to some of my individual stocks and several of my Exchange Traded Funds (ETFs) last week, however, I continue to do so with very small buys as I believe the market is due for a more significant pullback.

That being said, it’s hard to see when or how such a correction would happen given the Fed continuing to fiscally backstop the market and preventing a significant fall.

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

Plop! Plop! Fizz, Fizz…

Whether it was the news that China would be banning all Bitcoin mining in the country on June 25, the fact that the Federal Reserve sees inflation, or some random tweet from Elon Musk, Bitcoin and the rest of the crypto sector once again lost all support this week, collapsing from the $35,000 level last Friday through the key $30,000 mark early Tuesday morning.

Bitcoin didn’t find support until reaching a new weekly low of $28,800.00, a whopping -55.62% loss from its current all-time high of $64,896.75.

Even news that software-developer-turned-Bitcoin-fanatic Michael Saylor’s MicroStrategy (MSTR) owns more than 100,000 Bitcoin after its latest purchase did nothing to turn the crypto around.

The Bullish Case

Both Bulls and Bears point to the Chinese crackdown as a negative, however, I fully disagree. Indeed, the number of users drops due to the crackdown, however, the sector needs additional capitalists using it to gain further legitimacy. Having the Chinese, use Bitcoin as a way to hide from the China’s currency detracts legitimacy and adds to the criminal perception of crypto’s use.

Additionally, now that the Chinese miners must stop, the mining rates will slow which leads to increased scarcity and increased perceived intrinsic value. The China story, in my opinion, is 100% bullish for the long-term outcome of Bitcoin. However, as I said last week, the price action certainly goes against my bullish long-term thesis.

The Bearish Case

Bears point to the ongoing weakness in the space and stories of FUD (Fear, Uncertainty, and Doubt) as the reasons for why they do not believe this week’s $28,800.00 low is the bottom for Bitcoin. Many technical analysts and chartists believe Bitcoin needs to test its previous all-time high from 2018 around $20,000 before it has truly bottomed.

Personally, I believe a low of $15,500 is very possible given that Bitcoin pulled back more than 80% after its last all-time high in 2018. Additionally, with all of the leverage and margin in the space combined with a lot of new money, I believe a break of $20,000 could cause a panic sell-off that would push Bitcoin much lower causing additional sellers to panic as the support they anticipated failed to hold.

Bitcoin Gameplan

Current Allocation: 3.063% (+1.131% from initial buy order)
Current Per-Coin Price: $32,393.73 (-8.304% from initial buy order)
Current Profit/Loss Status: +1.993% (*New Position*)

Rewind, Replay, Repeat…

When Bitcoin sold off shortly after the release of last week’s Week in Review, I opened a position with a buy which filled on Friday, June 18 at $35,327.42. On Sunday, Bitcoin lost support and dipped briefly near $33,500 before finding support and bouncing above my per-coin cost.

When it looked like Bitcoin might roll over once more, I used stop-loss limit orders to reduce my allocation with a sell order filling at $35,515.09. The sell lowered my per-coin cost a negligible -247% from $35,327.42 to $35,240.18 but lowered my allocation -0.571% from 1.653% to 1.082%.

From Sunday to Monday, Bitcoin once again lost support, with buy orders filling at $33,456 and $31,931. The orders lowered my per-coin cost -4.80% from $35,240.18 to $33,547.14 and increased my allocation +1.691% from 1.082% to 2.773%.

On Tuesday, a buy order filled at $30,859.95, lowering my per-coin cost an additional -2.355% from $33,547.14 to $32,756.97 and increasing my allocation +1.134% from 2.773% to 3.907%.

On Wednesday, Bitcoin bounced quite a bit above my per-coin cost leading me to take profits at an average selling price of $33,817.84, reducing my per-coin cost -1.109% from $32,756.97 to $32,393.73 and reducing my allocation -1.123% from 3.907% to 2.784%.

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:

0.569% @ $31,574
1.136% @ $29,387
1.704% @ $28,816
2.272% @ $26,168
5.680% @ $22,066
7.100% @ $19,178
8.521% @ $15,518
9.941% @ $11,176
11.361% @ $8,606
11.361% @ $5,977

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 June, Bitcoin crashed -56% to a low of $28,800.00.

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.