Summing Up The Week

The volatility remained relatively muted this week until we received sky-high inflation numbers on Friday which sent the markets into a turmoil. Combine this with traders and investors waiting next week’s meeting of the Federal Reserve where it’s expected they will raise the benchmark interest rate by another 0.50%, and you’ve got a recipe for serious excitement in the markets.

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

Market News

Mortgage demand falls to lowest level since 2000

On Wednesday, the Mortgage Bankers Association’s index revealed that mortgage demand had dropped to its lowest level in 22 years, reported CNBC. Demand dropped as interest rates continued to climb with the average 30-year fixed-rate mortgage increasing to 5.40% with points rising to 0.60 for loans with a 20% down payment. Refinance demand also fell another 6%, now 75% lower than a year ago.

“While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” said Joel Kan, an MBA economist. “The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers.”

While a cooling housing market may be a good sign that the Federal Reserve’s fight against inflation is seeing progress, there’s still much to be done before the Fed will even consider easing their current tightening cycle.

Jobless claims hit 229K, much higher than estimates

A few months ago, I stopped covering the weekly jobless claims figures as they had little to no effect on the market, however, this week, the Labor Department reported jobless claims for the week totaled 229,000, much higher than the 210,000 estimated by Dow Jones, reported CNBC.

The higher jobless claims could be a result of many companies including Amazon (AMZN) and Tesla (TSLA) laying off their workforce, and such a figure is often an indication of a weakening economy as businesses tighten their belts to deal with inflation. While, to some, this number means that the Federal Reserve’s fight against inflation is actually working, others believe the newly unemployed means inflation is raging higher than ever.

Inflation rose 8.6% in May, highest in more than 40 years

On Friday, the Bureau of Labor Statistics’ Consumer Price Index (CPI) showed a rise of 8.6% in May, the highest since December 1981 and far exceeding the already-high Dow Jones’ 8.3% estimate, reported CNBC. The market reacted much the way you might expect – virtual total panic!

“It’s hard to look at May’s inflation data and not be disappointed,” said Morning Consult chief economist John Leer. “We’re just not yet seeing any signs that we’re in the clear.” From here, it’s almost certain that the Fed will come out even more hawkish during next week’s meeting than what was expected just a few short days ago.

Next Week’s Gameplan

With the Fed meeting and inevitably raising the interest rate next week, the gameplan is interesting – will the market panic and sell off following the rate hike despite everyone already knowing the Fed’s intent, or will the market head higher since the rate hike is priced in?

Place your bets. Or, in this case, have your plan for what you will do if your positions head higher and what you will do if your positions head lower.

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 remains range-bound and weak… downside ahead?

For the past week, Bitcoin has traded in a range and continues to show signs of weakness, setting a lower weekly high at $31,745.00 and a break of the previous weekly low at $29,308.01 to make a lower-low at $29,200. For technical analysts, lower highs and lower lows indicate an asset that’s about to head further down.

Bitcoin will likely continue trading in this range until it either breaks through $32,383.96, its monthly high, on the upside or $28,000.00, its monthly low, on the downside.

The Bullish Case

Bulls like Michael Saylor of MicroStrategy (MSTR) have been making the interview circuit with claims that Bitcoin’s short-term volatility “isn’t relevant” and providing outlandish unsubstantiated upside targets of $1,000,000 per Bitcoin. Taking any of these bullish analysts seriously has been difficult since all of them are HODLers, meaning they obviously have a very biased reason for their long-term bullish predictions. 

The Bearish Case

Bears aren’t free from the craziness, either, as some Bears claim Bitcoin isn’t just headed down from here, but that it’s ultimate value will be zero. While I do tend to side with the Bears in terms of the current macro downtrend indicating further downside ahead for the crypto, as I’ve said before, I do not believe Bitcoin will ever go to zero. The crypto has proven over its existence that it holds inherent value to many individuals, regardless of what its eventual price may be – higher or lower.

Of course, the way I protect myself against the possibility of Bitcoin going to zero is by only risking a set amount of funds that I’m willing to lose entirely if I am wrong and it does zero out.

Bitcoin Trade Update

Current Allocation: 4.097% (-1.031% since last update)
Current Per-Coin Price: $30,076.22 (-0.724% since last update)
Current Profit/Loss Status: -1.905% (-0.439% since last update)

When Bitcoin broke out over my cost basis again this week, you know what time it is – profit-taking time! I follow the rule, “You take profits when you can, not when you want to.” Basically, that means sometimes taking smaller profits than I’d want because the overall trend is to the downside.

I made a few sells which gave me an average $31,045.44 selling price, lowering my per-coin cost just -0.724% from $30,295.68 to $30,076.22. Critically, the sales freed up more allocation in case there is significant downside ahead for Bitcoin, reducing my allocation size -1.031% from 5.128% to 4.097%.

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:

0.134% @ $28,435
0.192% @ $26,006
1.354% @ $25,040
2.197% @ $23,860
6.303% @ $21,425
7.069% @ $20,058
3.193% @ $18,057
3.193% @ $16,919
3.193% @ $14,007
3.193% @ $11,765

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.