Summing Up The Week

The week kicked off with a big bounce as the potential that the COVID omicron variant may not be as bad as initially expected. Then, the market remembered that the Federal Reserve Bank meets next week and we headed into a rollercoaster of ups-and-downs.

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

Market News

WHO says omicron variant could change course of pandemic

In a rather ominous release on Wednesday, the World Health Organization (WHO) said the mutated omicron COVID-19 variant could change the course of the pandemic, reported CNBC.

While more optimistic pundits remain hopeful that omicron’s substantially-increased contagiousness may combine with a lower death rate, thus ending the pandemic sooner, the WHO says it’s still too soon to tell. “Certain features of omicron, including its global spread and large number of mutations, suggest it could have a major impact on the course of the pandemic,” said WHO Director-General Tedros Adhanom Ghebreyesus.

“It’s too early to tell,” agreed Maria Van Kerkohove, WHO’S Technical Lead on COVID-19. “I just only wanted to caution against any conclusions about the severity of omicron yet.”

Powell’s recent policy shift raises concerns about Fed credibility

After Fed Chair Jerome Powell announced the Federal Reserve Bank’s recent change to its policy by eliminating the word “transitory” when describing inflation, many analysts are expressing concerns about the credibility of the venerable institution, reported CNBC.

“What the Fed has proven is the difficulty in forecasting by both committee and consensus,” said Joseph LaVorgna, Chief Economist for the Americas at Natixis. “In market parlance, the Fed has bought the high and sold the low. So, I do think there will be a credibility issue going forward.”

In its two-day meeting next week, the Federal Reserve is expected to announce plans to accelerate the reduction of its bond buying program, a process referred to as “tapering,” while potentially also announcing plans to raise the bank interest rate months sooner than expected.

Not every analyst believes the Fed should be doubted, however. “I think it adds to their credibility. The world is shifting underneath them,” Moody’s Analytics Chief Economist Mark Zandi said of the Fed’s series of pivots. “The Fed is doing exactly what it has to do. It’s trying to thread the needle.”

Inflation in November soared at fastest rate since 1982

On Friday, the Labor Department’s Consumer Price Index (CPI) showed inflation increased 0.8% in November, a 6.8% year-on-year rate and the fastest rate since June 1982, reported CNBC. The Dow Jones estimate was for a 6.7% annual gain.

The guilty parties of inflation continue to be food and energy. Energy prices have risen 33.3% since November 2020, including a 3.5% surge in November. Gasoline alone is up 58.1%.

Food prices have jumped 6.1% over the year, while used car and truck prices, a major contributor to the inflation burst, are up 31.4%, following a 2.5% increase last month.

“There’s no question no matter how you look at it, even if you take out the extremes caused by the pandemic, it’s still very high inflation,” said Randy Frederick, Managing Director of Trading and Derivatives at Charles Schwab. “This is still supply chain disruption, semiconductor-related inflation.”

Next Week’s Gameplan

While many still predict we’ll see a “Santa Claus Rally” between now and year-end, I remain vigilant to the potential of more market turmoil. It may seem like the market’s priced in whatever the Fed may say during their two-day meeting next week, but, lately, the volatility’s back and it’s hard to say what we can expect.

Accordingly, I’m sticking to my plan. I have buy targets for lower moves if the market rolls over and sell targets to take profits if we keep skyrocketing into year-end.

One thing’s for certain, the market hasn’t been boring in a few weeks!

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

Volatility’s Back, Baby! 25% Flash Crash in just a few hours!

Bitcoin experienced another of its flash-crashes last Friday evening (early Saturday for you east-coasters), dropping more than 25% in just a matter of hours before finding support at $42,333.00. As always, pundits spent the majority of the week coming up with a variety of explanations ranging from a whale trying to sell 1,500 Bitcoin in a single transaction to a liquidity event drying up all of the margin traders.

Bitcoin’s weekly high is now $51,995.00 – where it bounced up to after its dramatic death-drop to its weekly low of $42,333.00 last Friday.

For me, I’ve learned that Bitcoin’s moves are rarely explained in any way logical way. Rather than trying to figure out the “why,” I prefer to plan buys at areas of past significant support and plan my entire trade out in advance. Personally, I always account for the possibility of Bitcoin dropping 90% or more in all of my trades. Why? Because Bitcoin has dropped that much repeatedly in the past.

The Bullish Case

Bulls are left with egg on their faces this time. Claims that Bitcoin wouldn’t drop below $50,000 again and that the crypto was on track for a $250K high before the end of the year have been dashed. While some overly bullish analysts still argue there’s a chance Bitcoin will pull out of its death spiral before the end of the year, all traditional technical analysis metrics dictate otherwise.

The Bearish Case

It’s finally the Bears’ turn to say “I told ya so!” Bitcoin’s epic death-drop last Friday has proven that there’s still a TON of volatility in the crypto space and faith that previous support levels will always hold should be taken very lightly. The Bears’ predictions are back on the table with nearly every Bear stating we will see a re-test of Bitcoin’s 2021 low of $28,800.00 and an increasing number of analysts jumping on the “$20,000 is likely” bandwagon.

Bitcoin Trade Update

Current Allocation: 2.276% (+1.264% from last update)
Current Per-Coin Price: $50,716.42 (-15.487% from last update)
Current Profit/Loss Status: -4.808% (+4.278% from last update)

Bitcoin crashed through six separate buy orders I had in place during last Friday night’s epic bloodbath, giving me an average buy price of $44,872.26 (after trading fees). The orders lowered my per-coin cost -15.487% from $60,010.15 to $50,716.42 and raised my allocation +1.264% from 1.012% to 2.276%. By Buying-in-Stages since the trade’s start on November 11, I’ve lowered the per-coin cost of my allocation a total of -22.01% from $65,027.96 to $50,716.42.

As you’ll see from my Bitcoin Buying Targets below, the crypto is entering an interesting space where my purchase quantities start to increase substantially. You may notice that after the $20K mark, my quantities do drop off. The reason for this is if Bitcoin breaks through $20K, we have no real way of determining how low it may go and a panic-induced selloff could see the crypto pull back to 90% or more, a move not unusual for the crypto’s past.

Accordingly, my trade approach changes substantially at the $20K mark, going from making purchases that leave me only -20% down to allowing my loss to increase to a potential -50% down should Bitcoin sell off substantially more than anyone expects.

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:

0.160% @ $41,717
1.029% @ $38,088
1.765% @ $34,190
3.742% @ $29,318
5.691% @ $25,640
5.228% @ $23,840
14.14% @ $20,507
2.855% @ $18,423
2.855% @ $14,525
2.855% @ $11,909

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.
• In November 2021, Bitcoin rallied +140% to a new all-time high of $69,000.00.
• In December 2021, Bitcoin dropped -39% to a low of $42,333.00.

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.