Summing Up The Week

The past week was definitely a wild one with a small social media company causing a market-wide selloff and bad economic news causing… very little impact at all. In fact, we’re still very much in a “bad news is good news” environment.

Of course, the stock market can be positively neurotic when it comes to the headlines it chooses to find important.

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

Market News

SnapChat snapped the market?!

On Monday evening, Snap (SNAP), the makers of SnapChat, warned investors that the company would miss its revenue targets for the current quarter and a leaked memo told employees to slow hiring and reduce costs due to advertisers pulling back, reported CNBC.

Believe it or not, a lot of stock analysts and economists see advertising spend as an indicator of economic health, so when advertisers stop advertising as much, many take that as an indication that economy is weak. “We expect all online ad platforms to feel some impact of a significant consumer pullback,” said Morgan Stanley (MS) analysts in a note to investors on Tuesday. “Advertising is cyclical.”

Other analysts agreed. “We see no real reason to not take Snap’s negative pre-release at face value,” said Evercore ISI analysts a note released Monday evening. “Advertising is cyclical, and Macro headwinds are very likely getting much harder.” 

As a result, the market rolled over and dropped substantially on Tuesday, with SNAP itself dropping more than 40% during the single day’s trading.

Fed’s minutes reveal many more hikes, market… rises?!

On Wednesday, the minutes from the Federal Reserve’s meeting earlier in May revealed the committee plans to raise interest rates many more times than the market expected, reported CNBC. After the release of the minutes, the stock market actually headed higher.

While this move may seem counter-intuitive since higher interest rates are usually a limit on the future earnings of companies, you have to remember we’re in an inflationary environment. With inflation dramatically reducing the value of the dollar, getting inflation under control with many interest rate hikes would actually provide more of a benefit to future earnings power than the cost of money would detract.

So, yes, we continue to be in a “bad news is good news” environment.

U.S. GDP declined -1.5% in Q1, worse than thought…

On Thursday, the Commerce Department reported that first-quarter declined at -1.5% on an annual pace, worse than the -1.3% estimate from Dow Jones, reported CNBC. And, once again, the markets headed higher on the bad news.

The market will remain in a “bad news is good news” scenario until enough damage has been done to the economy that the Fed decides to back off from raising interest rates. Ironically, inflation is certainly the bigger concern facing the U.S., economically-speaking, so it’s likely that even a slowing economy won’t cause the Fed to back off.

The Fed has a history of infamously going too far – whether that’s leaving economic policy too loose for too long or tightening too much and sending the economy in a tailspin. Since we’re currently in a tightening cycle, it’s likely that the Fed will continue until more serious problems arise.

Regardless, the stock market looks for any hope to hang its hat on, and, on Thursday, that hope was a weakening GDP scaring the Fed.

Home listings spike… is the Housing Market finally rolling over?

On Thursday, Reatlor.com reported that the supply of homes for sales jumped 9% last week compared with the same period a year ago, the biggest annual gain since the company began tracking listings in 2017, reported CNBC. Redfin, an online realtor, also reported new listings rising nearly twice as fast in the past four weeks as they did last year.

Experts in the space believe this is a sign that sellers are getting worreied they might miss out on a red-hot market, what with mortgage rates sharply higher and a surprise pullback in the number of homes receiving offers.

“Rising mortgage rates have caused the housing market to shift, and now home sellers are in a hurry to find a buyer before demand weakens further,” said Redfin Chief Economist Daryl Fairweather.

“We used to get 10 to 15 offers on most houses; now, I’m seeing between two and six offers on a house, a good house,” said Lindsay Katz, a real estate broker at Redfin in the Los Angeles area. “I met with sellers in February who are going to sell in June, and it’s a very different conversation in February than it will be in June because the market has completely changed.”

While the news may be bad for realtors or homeowners looking to sell, the housing market has been skyrocketing since the pandemic with urban dwellers looking to move out to the more rural areas. The resulting spike in housing prices has caused a housing catastrophe for lower-income families who are in desperate need of relief.

Additionally, dousing the red-hot housing market has been a major goal of the Federal Reserve’s tightening, so now that the real estate market may be rolling over, this could be a sign that maybe, just maybe, the rate of inflation is starting to wane.

PCE rose 4.9% in April, indicating slowing inflation

On Friday, the Commerce Department reported that the core personal consumption expenditures price index (PCE) was in line with what was expected, slowing to 4.9% in April from 5.2% in March, potentially indicating slowing inflation, reported CNBC.

Once again, this is the weird world we’re living in – prices are rising, they’re just not rising as fast as they were because the rate of inflation is decreasing. With the Federal Reserve doing what it can to tamp down inflation, the markets rose on hopes that the actions the Fed is taking may actually be working.

Next Week’s Gameplan

Inflation continues to be the dominating force of what drives the markets. Next week, we have the double-combo of a four-day shortened trading week due to Memorial Day in the U.S. on Monday as well as the end of the month on next week’s first day of trading, Tuesday.

As we head into June and the rest of summer, we can expect more volatility, believe it or not, as trading volume (the amount of individual trades taking place) decreases as market professionals go on summer vacation. Historically, June has been a notoriously volatile month and is usually so to the downside, so while we’ve had a reprieve from serious bearish action this week, that might not continue in the coming months.

As always, have your Buying Plans at the ready and remain patient. There may be opportunities to add to positions in the coming days and weeks.

Have a great week, everyone!

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’s mini “Flash-Crash” leaves questions…

Bitcoin suddenly sold off in a rapid succession early Thursday morning, breaking through last week’s low of $28,605.00 before finding a new weekly low support at $28,000.00. Since the crypto was unable to make a new high, last week’s weekly high of $31,418.35 becomes the monthly high and this week’s high of $30,635.39 becomes the next point of resistance.

The Bullish Case

Bulls actually expressed excitement on Thursday that Bitcoin established new support at $28,000.00. Some even claimed that this shows the crypto is simply consolidating at this level before gaining enough strength to head into the next Bull Rally. Bears aren’t so sure…

The Bearish Case

Bears rightfully point out that whenever Bitcoin has a quick selloff and bounce during a bearish market like it did on Thursday, it’s simply a way to “clear out” any Bulls waiting to make buys at lower levels. Now that all of those buy orders have been filled, the Bears are free to short the crypto since all support is gone. If the Bears break the new weekly support, the next level is the 2022 low down at $25,338.53 followed by potentially much lower-lows from there.

Bitcoin Trade Update

Current Allocation: 7.994% (Unchanged since last update)
Current Per-Coin Price: $30,683.55 (Unchanged since last update)
Current Profit/Loss Status: -5.084% (-3.108% from last update)

With Bitcoin not breaking through to new highs nor crashing to lower-lows, I sat on my hands this week and watched the price action.

I remain Bearish about the crypto market right now. In my experience, the long-running bear markets in the space, often referred to “Crypto Winters,” don’t end until all of the biggest Bulls lose all hope. We are nowhere near that point with new entrants to the space like Michael Saylor, CEO of MicroStrategy (MSTR), continuing to tweet outlandish bull claims about potential all-time highs for Bitcoin coming soon to a market near you.

No, if this is a market that feels far too similar to the one I suffered through in 2018-2019, even a drop $20K will likely not provide a reprieve for the Bulls. Crypto Winters will only resolve themselves when all hope is lost for the Bulls… and I mean all hope. In 2018, Bulls thought dropping to $6,200 was bad… and then the market dropped another –50% from that point!

What if I’m wrong and we’re at a bottom before Bitcoin heads for new all-time highs?

No worries – I already have a decently-sized trade on with a great cost basis. Sure, I’m not even 10% allocated, but that’s the entire point of my strategy: I have already set the maximum amount of capital I’m willing to risk, so if I want to buy at Bitcoin’s lows, I have to keep capital on the sidelines and Buy in Stages on the way down. If Bitcoin bounces before I’m all-in, that’s a high-quality problem because it means my trade will become profitable and I’ll need to start taking some off the table on the way up.

The key to the crypto space (and any market, actually) is patience. It’s boring as heck, sometimes, but it’s all about patience. The market only wins if you’re impatient and make a move out of emotion, not planning or logic.

The one “edge” every investor has is time: wait long enough and the market will forget about you, your trade/investment could become profitable, and you can begin to exit.

… unless crypto goes completely to zero, of course.*

* And, that’s why you set the maximum amount of money you can afford to lose entirely in advance. Is it likely? Who knows… but it is possible.

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:

0.274% @ $25,861
3.926% @ $23,619
4.951% @ $22,052
5.790% @ $20,776
1.304% @ $18,816
1.664% @ $16,822
1.996% @ $14,028
2.329% @ $11,709
2.662% @ $10,426
2.994% @ $9,129

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.