Summing Up The Week
The market’s bipolar volatility continued this week, leaving many traders confused whether to play moves bullish, bearish, or to just sit on the sidelines and watch. Combine the market moves with the near lack of any significant news up until Federal Reserve President Jerome Powell’s speech on Thursday, and it adds up to some truly strange behavior… even for the stock market.
Let’s take a look at the news (or lack of) that moved the markets this week…
Market News
Netflix implodes -35% in a day, takes down Nasdaq
Single-stock news becoming a market-moving event is indeed rare, however, Netflix (NFLX) made it happen in a bad way on Wednesday following its disastrous earnings report Tuesday evening, reported CNBC.
Netflix dropped more than 35% on Wednesday alone, now down more than 70% from its all-time high. And, because NFLX is such a big weighting in the Nasdaq, Netflix’s death-drop brought the entire tech-laden index to its knees, too, leaving it down nearly -1.25% in a day.
What the heck happened to Netflix?
Everything that can go wrong seems to be going wrong at Netflix. In the first three months of 2022, the streaming service lost 200,000 subscribers when analysts expected it to gain 2,000,000. Then, the company guided that it expected to lose an additional 2,000,000 subscribers in the next three months when analysts expected a gain of 3,000,000. This is the first time in ten years that Netflix has lost subscribers.
Additionally, during the conference call, management, including noted CEO Reed Hastings, seemed almost baffled as to what’s happened. They tried to come up with plans to throw the kitchen sink on the problem, bringing up ideas that they long-since scoffed at including cracking down on users who share their passwords with others and even suggesting adding a cheaper subscription tier featuring advertisements, a revenue model that other streaming services have mixed luck with, at best.
For years, I have written about how I was confused about why anyone would invest in Netflix as the company hasn’t ever generated a profit and spends billions to create content in a space that seems overwhelmed with streaming services. Combine that with subscription fatigue where, at least anecdotally, many people I talk to are canceling streaming services, not adding more.
Well, my forecast for Netflix’s future has been realized in an even worse way than I ever anticipated. In my long-running Disney vs. Netflix series, I regularly said that either Disney (DIS) needed to be valued at Netflix’s (NFLX) valuation or Netflix would have to come down to Disney’s. Now, they’ve flip-flopped with Netflix taking on Disney’s old valuation and Disney becoming the darling in the space (as I always thought it should be).
From here, it’s hard to know if Netflix can pull out of this tailspin. Sure, the streaming giant likely won’t go out of business, but it’s hard to give NFLX’s stock the same sky-high valuations of old when it’s no longer growing, and, worse, is shrinking instead. Yikes!
Fed says what everyone expects, still shocks markets
In a move that should have come as a surprise to no one, yet seemed to shock everyone, Fed Reserve President Jerome Powell spoke on Thursday saying that taming inflation has become “absolutely essential,” and a 50-basis point rate hike is possible, if not likely, at the Fed’s May meeting, reported CNBC.
“It is appropriate in my view to be moving a little more quickly” to raise interest rates, said Powell during his presentation at the International Monetary Fund. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate; I would say 50 basis points will be on the table for the May meeting.”
Despite Powell’s statements essentially meeting the market’s expectations, the market sold off tremendously following his presentation, yet another example of how the markets can remain irrational longer than any investor can remain solvent.
Following Powell’s comments, the 10-year U.S. treasury bond yield popped +0.09%, bringing the yield dangerously close to the key 3.00% mark at 2.94% with the 30-year Treasury also raising 0.09% to hit 2.96%.
Next Week’s Gameplan
Market volatility certainly produces anxiety in day-traders, but it can even affect long-term investors, too. Remember that if you’re investing for the long term, you should ignore short-term swings in the market (and “short-term” can be weeks or even months).
Rather than let sudden moves to the upside or downside motivate you to consider rash decisions, simply make your plan and stick to it. Add to positions when the price hits your target buy price and take profits when the price hits your sell price.
I like to say I’m always wrong (mostly because it’s true). I know I will almost never buy at the lowest price and I will almost never sell at the highest price. Once I wrap my head around that, I stop shooting for the best possible deal and stick to my plan that will lead to success over the long term… because that’s my time horizon.
Have a great week, everybody, and I’ll see you back here next Friday!
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
Important Disclaimer
Get Irked contributors are not professional advisers. Discussions of positions should not be taken as recommendations to buy or sell. All investments carry risk and all readers must accept their own risks. Get Irked recommends anyone interested in investing or trading any asset class consult with a professional investment adviser to determine if an investment idea is suitable to them and their investment goals.
Bitcoin Price (in USD)
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Weekly Change
Bitcoin Price Action
Let the Bitcoin Flip-Flop Begin…
Despite the price action week-over-week not necessarily showing it, Bitcoin had a wild week. First, it broke down through the $39,204.59 weekly low, tested the Support of Last Resort, and found new support with a weekly low at $38,550.00.
Then, the wily crypto tried to rally but found resistance before the previous weekly high at $43,443.42, finding new resistance and setting a new lower weekly high at $43,000.00.
From here, Bitcoin’s next big move will be determined on which end it breaks – the weekly high or the weekly low.
The Bullish Case
Bulls still claim Bitcoin is “digital gold” even though its price action has been directly correlated to the tech-laden Nasdaq, and inversely-correlated to gold. Bulls claim that finding support in the high $30Ks means Bitcoin has higher-highs in store.
The Bearish Case
Bears continue to rest easy, pointing to the overall macro trend as indicating more downside ahead. In fact, Bitcoin hasn’t gotten even close to the Downtrend? line in weeks, indicating that even if it makes a break to the upside, it will remain in a bearish overall pattern if it can’t get through and stay above that key trendline.
Bitcoin Trade Update
Current Allocation: 2.888% (-0.067% from last update)
Current Per-Coin Price: $39,327.54 (-0.33% from last update)
Current Profit/Loss Status: +2.088% (-0.442% from last update)
I made another buy when Bitcoin broke down below $40,000 over the past week with an order that went through on Sunday at $39,247.20. However, when Bitcoin broke through the weekly low, I took some profits using stop limit orders on Tuesday and Wednesday at an average price of $41,284.28 following the crypto’s bounce.
The orders resulted in a -0.33% reduction of my per-coin cost from $39,456.24 to $39,327.54 and a -0.067% decrease of my allocation from 2.955% to 2.888%. Now, the new support will become my next buying target.
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:
0.152% @ $38,937
0.152% @ $36,687
0.152% @ $34,873
0.304% @ $32,389
1.134% @ $30,015
1.298% @ $28,959
3.515% @ $25,337
4.324% @ $23,108
10.40% @ $20,741
3.040% @ $16,353
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 April 2021, Bitcoin rallied +51% 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 January 2022, Bitcoin crashed -52% to a low of $32,933.33.
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.
