Summing Up The Week

The news is starting to make the markets feel toppy with more and more potential negative catalysts comparable to positive ones. U.S.-China tensions rise, the housing boom seems to be over, and the economy doesn’t seem to be growing as fast as the “experts” expect.

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

Market News

U.S.-China tensions not going anywhere

The week kicked off with a tense meeting between the United States and China ending with a Beijing officially saying the relationship “is now in a stalemate and faces serious difficulties,” reported CNBC on Monday.

Chinese officials complained that the U.S. is portraying China as an “imagined enemy” in an English-language release. The release went on to say that the country still wants to work with the U.S., however it wants changes made to adhere to Chinese interests.

Specifically, China is unhappy that the U.S. is suppressing a number of Chinese companies, wants the U.S. to lift sanctions on Chinese officials, and remove visa restrictions on Chinese students among a number of other demands.

For its part, the U.S. State Department took a far more diplomatic approach, saying in a statement, “The Deputy Secretary underscored that the United States welcomes the stiff competition between our countries and that we intend to continue to strengthen our own competitive hand, but that we do not seek conflict with the PRC.”

The markets virtually ignored the event as the week was filled with earnings report from the biggest megacap growth companies, reports that would move the markets far more than the ongoing and unsurprising tensions between the two countries.

Housing boom over? Home sales fall to pandemic low

On Monday, the U.S. Census Bureau released data showing new home sales dropping 6.6% in June versus the 3.4% increase expected by economists, reported CNBC.

The dramatic flip in the housing market led some to theorize the housing boom is now over. Much of the homebuying remains on the higher end of the market as builders cannot afford to put up entry-level homes due to rising construction costs.

“We also know there are shortages of appliances, labor, and affordable lots,” said Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group. “The moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays.”

Additionally, the inventory of new homes for sale increased from a 5.5-month supply in May to a 6.3-month supply in June. Comparatively, the inventory had been as low as 3.5 months last fall.

On Thursday, more evidence of a housing turnaround rolled in as the National Association of Realtors released figures showing pending home sales fell 1.9% in June, down 1.9% compared with June 2020, reported CNBC.

“With prices at record highs and mortgage rates still hovering near record lows, sellers are recognizing the favorable conditions,” said George Ratiu, Senior Economist at Realtor.com. “The rise in prices will soften demand and then cool the price appreciation.”

Fed holds rate near zero though economy is better

On Wednesday, the Federal Reserve Bank announced it would hold its benchmark interest rate near zero while saying the economy continues to progress despite concerns over the pandemic spread, reported CNBC.

The Fed kept the rate at a target range between zero and 0.25% with an unaimously approved statement that the economy continues to “strengthen.”

Chairman Jerome Powell once again stated the Fed is not considering a rate hike anytime soon, “Our approach here has to be as transparent as we can; we have not reached substantial further progress, yet,” he said. “We see ourselves having some ground to cover to get there.”

U.S. GDP grows 6.5%, well below estimates

On Thursday, the Commerce Department reported that the U.S. Gross Domestic Product (GDP) grew at 6.5% in the second quarter of 2021, well below Dow Jones’ estimate of 8.4%, reported CNBC.

Declines in private inventory and residential investment held back gains due to rising imports and a 5% decline in the rate of federal government spending, the Bureau of Economic Analysis reported.

“The good news is that the economy has now surpassed its pre-pandemic level,” wrote Paul Ashworth, Chief U.S. Economist at Capital Economics. “But, with the impact from fiscal stimulus waning, surging prices weakening purchasing power, the delta variant running amok in the south, and the saving rate lower than we thought, we expect GDP growth to slow to 3.5% annualized in the second half of the year.”

Key inflation up 3.5% over year for fastest gain since 1991

On Friday, the Commerce Department reported that the Personal Consumption Expenditures price index, an inflation indicator that the Federal Reserve uses as a key guide, rose 3.5% in June, the increase was roughly in-line with Wall Street expectations which were for a gain of 3.6%, reported CNBC.

The core PCE is rising 0.4% month-over-month which compares with personal income which is only rising 0.1% per month. While the Fed continues to describe this inflation surge as transitory in nature, it’s hard to see why companies would lower prices once consumers become used to the higher prices (and, thus, higher profits for corporations).

CDC warns delta more contagious and worse than original

On Friday, the Centers for Disease Control (CDC) warned lawmakers that the delta variant of Covid-19 is as contagious as chicken pox and likely to make people sicker than the original strain, reported CNBC.

The CDC reports that the delta variant is more transmissible than the common cold, the 1918 Spanish flu, smallpox, Ebola, MERS, and SARS.

While the vaccines prevent more than 90% of severe disease, they may not be as effective at preventing the initial infection, raising the risk of spread even in the vaccinated population. Additionally, the CDC reported that 5,914 fully-vaccinated people have been hospitalized or died with Covid infections as of the most recent data available from July 19.

“I am deeply concerned about the rapidly increasing rates of coronavirus infections in states around the country that is being driven by the Delta variant,” said Rep. James E. Clyburn, chairman of the Select Subcommittee on the Coronavirus Crisis. “This sudden turn of events threatens to undermine the significant progress we have made this year to overcome the pandemic.”

Next Week’s Gameplan

The market continues to offer opportunities in specific names as the rotation continues. In fact, I’ve found myself adding to some positions while simultaneously taking profits in others – it’s a stock-pickers’ market.

The lack of trading volume continues to add to the volatility in singular names even while the indexes themselves remain somewhat level.

Let’s see what next week brings…

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 confounds again… this time for the bulls!

Despite news breaking on Monday that the Department of Justice is reportedly investigating the stablecoin, Tether, on alleged accusations that the company doesn’t truly hold the $62.3B in assets it claims to, Bitcoin and the rest of the crypto market skyrocketed Sunday and Monday with Bitcoin nearly hitting $40,000.

As is typical for the crypto market, there is no explanation for the surprising bull rally. Bitcoin wasn’t terribly oversold based on any timeframe of the Relative Strength Index (RSI), so, as is so often the case, the sudden bull run will likely remain a mystery.

The Line That Shall Not Be Crossed (2021) isn’t as a solid as it was over the past few months, having been solidly broken over the past week. I have adjusted it to create a potentially new line of resistance, however, I won’t have the same level of confidence in the new downtrend until we see it reverse Bitcoin’s current rally.

The Bullish Case

Bulls point to the strength of the move as a reversal of the recent bear market conditions from the past several months as the rally was able to break higher than the price of Bitcoin had been in months.

The Bearish Case

Bears argue that Bitcoin remains in a macro bearish downtrend despite the results of the bull rally over the past week. While the rally was a surprise, Bears still don’t feel that Bitcoin is out of the bearish downtrend on the macro level.

Bitcoin Gameplan

*Trade Closed: +22.922% Profit in 3 Weeks*

When Bitcoin saw its spectacular rally this week, I knew it was time to take profits which I did with small selling orders all the way up. When Bitcoin peaked over $40,000, it was time to use a stop-loss order and close out the entire trade.

My final sell order closed at $39,091.61 on Monday, July 26, giving me an average selling price of $37,802.18 after fees. My average buying price, thanks to the dip below $30K, was $30,752.98 giving me a +22.922% gain over the course of the trade from July 4 to July 26, slightly over three weeks, an annualized return of +397.315%.

The trade added +4.449% to my banked crypto (as always, I keep my profits in the crypto I trade to protect against FOMO).

*New Trade Opened*

Current Allocation: 0.438% (-0.102% from open)
Current Per-Coin Price: $36,921.08 (-1.454% from open)
Current Profit/Loss Status: +5.617% (*New trade*)

While I am still bearish on the macro outlook for the entire crypto space, my trading discipline requires I plan for both directions, so I felt compelled to open a new position just in case my outlook is wrong and the “crypto winter” is over with new highs in store.

That being said, to address my bearish outlook, I’m being very conservative with how I decided to build a new position, using much smaller allocations than I normally do.

When Bitcoin pulled back substantially from its high, I started eyeing a place to open and did so with a small buy of 0.540% of my target allocation on Tuesday at $37,465.67, down -7.657% from where Bitcoin’s sudden bull rally found resistance around the $40,000 level.

On Thursday, I took small profits at $39,421.31 when Bitcoin seemed to weaken, lowering my allocation -0.102% from 0.540% to 0.438% and reducing my per-coin cost -1.454% from $37,465.67 to $36,921.08.

From here, it’s waiting game. If Bitcoin heads higher, I will take profits at much higher levels. If Bitcoin head lower, I will add but I do not intend to reduce my current position given how small it is now.

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:

0.145% @ $36,701
0.582% @ $35,001
0.727% @ $33,774
0.873% @ $32,911
1.018% @ $30,484
2.037% @ $28,958
2.328% @ $26,525
3.492% @ $23,773
5.819% @ $19,775
5.819% @ $16,290

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.