Summing Up The Week

Market volatility remains the name of the game as the stock market took investors on a rollercoaster ride all week. A slight recovery on Monday was followed by a steep selloff mid-week only to have a declining economy cause stocks to pop on Thursday. Then, an in-line CPI report topped off the week. Whew.

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

Market News

U.S. GDP dropped -1.4% in Q1-2022, stocks rise on news

On Thursday, the Commerce Department reported the Gross Domestic Product (GDP) of the U.S., the primary measure of the economy, dropped -1.4% annualized in the first quarter of 2022, reported CNBC. Many economists, including Dow Jones’, estimated the GDP would gain 1% for the quarter, still anemic growth, but to have a loss came as a shock.

So, why did the market go up??

While unexpected declines in economic growth are typically bad news for the stock market, the market participants have been so terrified at the Federal Reserve’s hawkish approach to raising interest rates that this news actually came as a relief. 

Why? Because a weakening economy could potentially lead to a less hawkish Fed. Pundits believe that seeing the economy get weaker could scare the Fed into backing off, reducing the pace at which they raise interest rates, and potentially giving more upside to stocks.

Yes, this is the world we live in post-pandemic; we’re rooting for a weak economy.

It’s crazy.

Consumer prices rose 5.2% in March

On Friday, the Bureau of Economic Analysis showed the core personal consumption expenditures (PCE) rose 5.2% from a year ago versus expectations of 5.3% from economists, reported CNBC. The PCE shows how fast prices for consumer products are increasing and is the Federal Reserve’s preferred gauge of inflation.

Despite the tiny 0.1% decrease from February, some pundits expressed hope that the lower number might indicate inflation is peaking. “The bigger story from today’s data releases was further evidence that inflation is starting to ease,” wrote Andrew Hunter, senior U.S. economist at Capital Economics.

If the rate of inflation falls off quicker than the Fed expects, the rate of needed interest rate hikes may not be as high as the central bankers feel. The result? A less hawkish environment for the stock market resulting in a greater chance for recovery in stocks.

For me, the “decrease” is so small that it would fall in my personal margin of error, i.e. I believe next month could see a return to a high rate of inflation. Regardless, it’s always important to note that any positive result for PCE indicates inflation. In order for prices to stay flat or decrease, the PCE must return a value of 0.00% or lower; in other words, any news is bad news when it comes to this price index.

Next Week’s Gameplan

Despite the end of a tumultuous April, there’s no reason to believe May will be any easier as some traders still follow the adage “sell in May and go away.” In other words, many traders close their positions entirely and go away on their summer vacations in May. The decreased trading volume often leads to even greater volatility throughout the summer months of June, July, and August. 

In other words, keep your powder dry and your plans intact. There’s no sign this wild market ride is anywhere near its end.

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 continues to demonstrate weakness…

Bitcoin broke through the weekly low of $38,550.00, finding new support at $37,700.00 and then bouncing to create a much lower weekly high of $40,817.16. More concerning for the Bulls is that the crypto has now fallen below the Support of Last Resort trendline.

In Technical Analysis terms, when an asset closes below a past point of support, that support becomes resistance which means Bitcoin could have a hard time getting back above that key trendline which has been in place since before its huge run in 2017.

The Bullish Case

Bulls believe the current economic climate, both the inflation and decreasing U.S. GDP, is nothing but good for Bitcoin. Despite all evidence pointing to the contrary, many bullish pundits still claim Bitcoin is “digital gold” even though the crypto has been trading in lock-step with the NASDAQ tech stocks, not the precious metal.

The Bearish Case

Just as they have for the past weeks or even months, Bears rest easy knowing that Bitcoin is very much in a macro downtrend move. Sure, Bitcoin has been known to shock traders and investors by flipping suddenly, there are absolutely no positive catalysts on the horizon that would make most unbiased participants feel there’s anything but downside ahead for the world’s most popular cryptocurrency.

Bitcoin Trade Update

Current Allocation: 3.241% (+0.353% from last update)
Current Per-Coin Price: $39,282.30 (-0.115% from last update)
Current Profit/Loss Status: -0.453% (-2.541% from last update)

I added to my position when Bitcoin cracked through my next price target at $38,288.10 with a buy that lowered my per-coin cost just -0.115% from $39,327.54 to $39,282.30 and increased my allocation +0.353% from 2.888% to 3.241%. From here, I’ve now raised my next buy target to be slightly above Bitcoin’s new weekly low.

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:

0.162% @ $37,840
0.162% @ $36,977
0.162% @ $35,011
0.162% @ $32,865
1.351% @ $30,015
1.241% @ $28,808
3.723% @ $25,454
4.549% @ $23,239
7.932% @ $20,873
3.241% @ $16,457

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.

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.