Summing Up The Week

With the Fed’s upcoming meeting where they’re expected to announce its taper plan, concerns about high inflation, and a general unease about September trading, the markets were unstable this week.

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

Market News

Automakers fear chip shortage will persist

On Tuesday, Ford, Volkswagen, Daimler and other automakers continued to struggle with the global semiconductor shortage, reported CNBC.

CEOs from the companies spoke with CNBC’s Annette Weisbach at the Munich Motor Show, all explaining that it is difficult to determine when the issue will resolve itself. “We are relatively weak because of semiconductor shortages,” said Volkswagen CEO Herbert Diess. “We are hit more in China than the rest of the world; that’s why we are losing market share.”

To further exacerbate the crisis, other manufacturers like Ford are also facing a shortage in raw materials. “It’s not only semiconductors,” explained Gunnar Herrmann, Ford Europe’s Chairman of the Board. “You find shortages or constraints all over the place [in lithium, plastics, and steel.]”

Given how auto sales represent a significant percentage of GDP for countries with automakers, continued depressed sales could have a negative effect on overall global economic recovery for some time to come.

Mortgage demand falls to lowest in two months

On Wednesday, total mortgage application volume fell 1.9% last week according to the Mortgage Bankers Association’s seasonally-adjusted index, the lowest level since July, reported CNBC.

Pundits pointed to the relatively stagnant interest rates with an average 30-year fixed-rate mortgage at 3.03% with points of 0.33 as the reason for the decline in demand. “Refinance volume has been moderating while purchase volume continues to be lower than expected given the lack of homes on the market,” said Mike Fratantoni, MBA’s Chief Economist. “Economic data has sent mixed signals with slower job growth but a further drop in unemployment in August. We expect that further improvements iwll lead to a tapering of Fed MBS purchases by the end of the year which should put some upward pressure on mortgage rates.”

The housing market is a double-edged sword as a thriving housing market usually indicates a strong economy, however, housing prices in the United States have been on fire since the pandemic, so a cooling-off period may be in order, too.

Job openings rise to 10.9 million

On Wednesday, the Labor Department reported that job openings jumped to 10.9 million in July, an increase over June’s 10.18 million, reported CNBC. This figure was also compounded by the fact that hiring slowed in August with payrolls growing by just 235,000.

However, I remain in the camp that believes these figures will change once the subsidized unemployment benefits end and those currently not working because they’re making more from unemployment return to work. 

While some states where unemployment benefits have already ended report not seeing a difference in employment, I believe there are likely many who are choosing to remain unemployed so they can wait to see if the Federal government provides additional stimulus. Why return to work earlier than necessary only to miss out on additional benefits?

I may be wrong in my thinking, however, I’m just using the perspective of what I would do – why risk my personal health and work during the day if I don’t have to and can stay home making more money? I believe that when the reality of no more stimulus sets in, those currently unemployed will return to work.

Given that the Federal unemployment stimulus only ended this past Monday, I don’t anticipate we will see a change in the job openings reports until November when the Labor Department reports September’s numbers. In the meantime, we may see a change in unemployment and new jobless claims between now and then.

Weekly jobless claims drop to 310K, another low

On Thursday, the Labor Department reported first-time filings for unemployment claims in the U.S. dropped to 310,000 last week versus the 335,000 estimate, reported CNBC.

I’m going to stop reporting this number for the Week in Review as I no longer think it’s relevant unless we see a sharp increase in jobless claims. Naturally, there should be fewer people claiming unemployment for the first time as we continue to reopen the economy; what’s news is how many individuals are still claiming unemployment.

Along those lines, continuing claims fell to 11.93 million, a drop of 255,757. 11.93 million Americans continuing to claim unemployment means the actual number of unemployed Americans remains far higher, and that figure is the one that will serve as a more accurate indicator of the health of the economy, in my humble opinion.

Weekly jobless claims drop to 310K, another low

On Thursday, the Labor Department reported first-time filings for unemployment claims in the U.S. dropped to 310,000 last week versus the 335,000 estimate, reported CNBC.

I’m going to stop reporting this number for the Week in Review as I no longer think it’s relevant unless we see a sharp increase in jobless claims. Naturally, there should be fewer people claiming unemployment for the first time as we continue to reopen the economy; what’s news is how many individuals are still claiming unemployment.

Along those lines, continuing claims fell to 11.93 million, a drop of 255,757. 11.93 million Americans continuing to claim unemployment means the actual number of unemployed Americans remains far higher, and that figure is the one that will serve as a more accurate indicator of the health of the economy, in my humble opinion.

Producer inflation rose a record 8.3% in August

On Friday, the Labor Department reported that the Producer Price Index (PPI), the index which measures the cost of final deamnd goods and services, surged in August to its highest rate since 2010, reported CNBC.

On a year-over-year basis, the gauge rose 8.3%, the biggest annual increase since the department started keeping records in November 2010. The PPI has long been held as an accurate barometer of inflation and such a high figure indicates significant inflation persists in the economy.

The markets sold off on the news as non-transitory inflation might cause the Fed to take more drastic steps, not only tapering bond buying at a faster rate, but potentially prompting the need to raise the base interest rate.

Next Week’s Gameplan

We’re only seven trading days into the month and September’s already living up to its reputation of being a shaky time. With next week presenting the first full week of trading, let’s see what happens next.

Oh, and the gameplan remains unchanged – take profits on positions that need profits taken, add to positions that need to be added to.

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

Wasn’t being a national currency supposed to stabilize prices?

Bitcoin became the national currency of El Salvador on Tuesday, and, in celebration, the crypto collapsed a whopping -20% in just 12 hours before finding support.

Prior to the selloff, the El Salvadoran government had been touting the value of making Bitcoin its national currency instead of using the U.S. dollar, however, I imagine many citizens lost a lot of confidence when their buying power dropped by -20% in less than half-a-day. 

I’ve adjusted The Line That Shall Not Be Crossed (2021) to take into account what is likely a definitive line of resistance now given the epic magnitude of the week’s selloff.

The Bullish Case

Bulls point to the support found in the $42K range as a reason the rally is not over as institutional and retail buyers stepped in before Bitcoin was able to break through the psychological support of $40K.

The Bearish Case

Bears believe this new bear swoon is far from over, pointing to past drops which would rest a few days between epic selloffs before starting right up again. Some technical analysts believe Bitcoin will see another 10-20% drop around September 11 when weekend volume is slim.

Bitcoin Gameplan

High Risk = Low Allocation

Current Allocation: 0.214% (+0.081% since start of trade)
Current Per-Coin Price: $46,660.83 (-6.426% since start of trade)
Current Profit/Loss Status: -3.315% (*New Trade*)

Despite Bitcoin feeling pretty toppy, I decided to throw my hat in the ring with a small 0.133% allocation on Saturday when Bitcoin dipped below $50K, triggering a buy order which filled at $49,865.26 after fees. I intentionally used a very small allocation as I really do feel like Bitcoin and the rest of the crypto market is due for a significant pullback, however, as always, I could easily be wrong so I wanted exposure.

After popping to near $53,000, I decided to use a stop-loss limit order to reduce my allocation and per-coin cost with a sell order that filled at $52,254.17 on Tuesday morning, reducing my per-coin cost -2.811% from $49,865.26 to $48,463.43 and reducing my allocation -0.053% from 0.133% to 0.080%.

Turns out, that was the right move made in the nick of time as Bitcoin’s selloff started shortly after hitting my sell order, pounding through a number of buy orders I had in place on its way down. Three orders filled on Tuesday morning giving me an average buying price of $45,702.58 and lowering my per-coin cost -3.719% from $48,463.43 to $46,660.93 (after fees, of course).

I continued using incredibly small quantities as I just didn’t believe Bitcoin had the necessary support to stay above the $40K level. So, my orders ended up only increasing my allocation by +0.161% from 0.080% to 0.241%.

On Thursday, Bitcoin started to stabilize above my per-coin cost, so I used a stop-limit sell order to reduce my allocation at my cost basis. The sale went through at $46,852.03, reducing my per-coin cost just $0.10, but, more importantly, reducing my allocation -0.027% from 0.241% to 0.214%.

Now, it’s just a waiting game – if Bitcoin makes another attempt under $43K, I’ll start adding. If Bitcoin tries for $53K again, I’ll start taking profits.

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:

0.027% @ $42,918
0.027% @ $42,269
0.054% @ $40,537
0.054% @ $38,336
0.054% @ $35,968
0.162% @ $32,956
0.263% @ $30,088
0.754% @ $29,108
0.268% @ $28,556
0.804% @ $26,083

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 2021, 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.