Summing Up The Week

Inflation got real this week. I know, you and I have been paying attention to inflation for more than a year (back when it was just “transitory”), but, for some reason, the stock market just wasn’t taking it seriously until Walmart (WMT) and Target (TGT) terrified the retail sector with horrible earnings reports.

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

Market News

Retail spending increased 0.9% in April

According to a Commerce Department report, retail spending increased 0.9% overall in April, slightly below estimates for a 1% increase, reported CNBC on Tuesday. During non-inflationary times, an increase in consumer spending indicates strength in the economy since much of the U.S. economy is dependent on consumers.

However, during inflationary times like we are currently experiencing, an increase in spending does not indicate consumer strength, rather it simply indicates consumers are spending more because products cost more due to inflation. Not all is lost, though, as some analysts believe inflation may have peaked.

“Retail sales in April show that the consumer is weathering the inflationary headwinds, rising for the fourth consecutive month,” said Jeffrey Roach, chief economist at LPL Financial. “Core categories show signs that consumers are likely dipping into savings to offset the decline in real wages. If pricing pressures can moderate enough to relieve some of the pressure on consumers, we expect a rebound in economic growth in Q2.”

Powell determined to fight inflation

In an interview with the Wall Street Journal released Tuesday, Federal Reserve Chairman Jerome Powell remains laser-focused on raising rates as high as is required to bring inflation back down, reported CNBC.

“If that involves moving past broadly understood levels of neutral we won’t hesitate to do that,” the central bank leader told The Wall Street Journal in a livestreamed interview. “We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down; we’ll go to that point. There won’t be any hesitation about that.”

Powell went on to reaffirm the Fed’s prior plans of raising the interest rate 0.50% at each of the next two monthly meetings, at least. “You’d still have a strong labor market if unemployment were to move up a few ticks,” he said. “I would say there are a number of plausible paths to have a soft as I said ‘softish landing.’ Our job isn’t to handicap the odds, it’s to try to achieve that.”

Walmart and Target disappoint with earnings & guidance

Both Walmart (WMT) and Target (TGT) disappointed when the two major retailers reported earnings and gave negative forward guidance this week on Tuesday and Wednesday, respectively. In fact, Walmart had its worst single-day price action since the 1980s… its miss was that bad.

In addition to having a substantial impact on the retail sector itself, the two major chains gave indications that inflation was having a rougher impact on the American consumer than many economists may have thought. “Given that stimulus checks happened last year, there was some benefit to some of those folks that is eroding overtime and as we look at the rest of the year, that’s something that’s on our mind,” Walmart CEO Doug McMillon said during the company’s earnings call.

Target experienced similar impacts from supply chain and inflation woes. “While we saw healthy top line growth in the quarter, we were less profitable than we expected to be or intend to be over time,” said Target CEO Brian Cornell on a call with reporters. 

Following Target’s report on Wednesday, the market rolled over, erasing the rally it saw on Tuesday, to head to lower levels once more.

Next Week’s Gameplan

Even though it can seem as though the stock market has found a bottom periodically, you have to remember that, during bear markets, the market can seem to stabilize for days or even weeks before heading down to plumb deeper depths.

Because of the potential of unpredictable downside, it’s important to remember to keep making your plan, buying in stages, and remaining vigilant. However, it’s also important to remember to keep putting money in. We have no idea where the bottom is, and I never want to miss a good buying opportunity because I was holding out for better prices; I’d rather buy smaller quantities at lower and lower levels, getting better and better prices the more the markets sell off.

As always, take care of yourselves and I’ll see you next week!

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 can’t keep its head above $30K…

Bitcoin spent the last week unable to make real progress toward a recovery, briefly creating a new weekly high at $31,418.35 on Sunday before falling back beneath the key $30,000 mark where it set a new weekly low at $28,605.00 on Wednesday.

The Bullish Case

Some Bulls actually point to the fact that Bitcoin hasn’t made a new leg downward as a victory, claiming that since the Bears’ $20K case didn’t come to fruition (yet), that Bitcoin has found support and will head for higher-highs.

The Bearish Case

Bears remain in full control. With inflation raging and the rest of the investment sector weak, there’s not much good news in store for Bitcoin. Additionally, whenever Bitcoin sold off epically in the past, it often dropped to a low, consolidated for a few days (or even a week or two), and then headed to an all-new lower-low. Until the macro trend changes, the risk is definitely to the downside in crypto.

Bitcoin Trade Update

Since Bitcoin has spent the last week consolidating, nothing has changed when it comes to my trade. I have added another buy target above its new support around $25.5K just to add a tiny amount to my existing trade.

Historically, either Bitcoin’s first big drop remains untested and provides solid support for months or it fails when Bitcoin heads to new lower-lows, so I’m using a very small quantity for the buy more out of “fun” than serious allocation increasing. My next big buy won’t take place until Bitcoin breaks through its $25K low and heads lower from there.

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:

0.288% @ $25,861
4.316% @ $23,529
6.216% @ $21,687
6.240% @ $20,714
1.747% @ $18,257
2.097% @ $16,753
2.446% @ $13,855
2.795% @ $11,627
3.145% @ $10,364
3.494% @ $9,067

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.
• In December 2019, Bitcoin crashed -54% to a low of $6430.00 in December 2019.
• In February 2020, Bitcoin rallied +64% to $10,522.51.
• 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 May 2022, Bitcoin crashed -63% to a low of $25,338.53.

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.