Summing Up The Week

The market continued its rally from last week for the majority of this week on the back of cooling economic data. Now, that sounds counterintuitive, however, many analysts believe a cooling economy will mean that the Fed will take less severe action when they meet next week, with most now expecting a 0.75% interest rate hike as opposed to a 1.00% hike.

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

Market News

Homebuilder sentiment sees 2nd biggest monthly drop EVER…

On Monday, the National Association of Home Builders’ survey showed a sentiment drop of 12 points, the second biggest single monthly drop in the survey’s 37-year with only April 2020 beating out the negative result, reported CNBC. The one-two punch of rising home prices and skyrocketing mortgage interest rates have cooled buyer enthusiasm, resulting in homebuilders pulling back on the construction of new homes.

“Affordability is the greatest challenge facing the housing market,” said Robert Dietz, NAHB’s chief economist. “Significant segments of the home buying population are priced out of the market.”

Additionally, a rise in contract cancellations has resulted in price reduction in some markets. “Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” Konter said.

Historically, weakness in the homebuilders precedes weakness in the job market, so many analysts are keeping an eye on new unemployment data to determine the potential fallout in the economy as a whole.

Mortgage demand drops to 22-year low

Following Monday’s homebuilder survey, no one should have been surprised when, on Wednesday, the Mortgage Bankers Association’s (MBA) index showed mortgage demand fell more than 6% in a week, hitting the lowest level since 2000, reported CNBC.

“Purchase activity declined for both conventional and government loans as the weakening economic outlook, high inflation and persistent affordability challenges are impacting buyer demand,” said Joel Kan, an economist for the MBA.

Professionals expect even further drops as the Federal Reserve Bank is expected to raise the benchmark rate by another 0.75%, at minimum, during their meeting next week.

Jobless claims rise as labor market cools

Months ago, I stopped reporting on the weekly jobless claims figures as they lost their representative value in an economy on fire, however, on Thursday, the Labor Department reported 251,000 jobless claims this week, above the 240,000 estimate, an indication that the labor market is slowing, reported CNBC.

This data point is another of those “is bad news good news?” situations. On the one hand, a cooling job market indicates a weakening economy. On the other hand, a weak job market indicates the Federal Reserve’s fight against inflation may actually be working as cooling both the job market and the housing market is integral to reducing inflationary pressures on the economy.

Next Week’s Gameplan

With the market in rally mode this week, I spent my time reviewing my positions and adjusting buying and selling targets, if necessary. Many analysts believe this week’s rally to be a short-term “relief rally,” a rally that occurs when the entire market is overwhelmingly bearish and reaches oversold levels. In other words, these analysts believe the rally does not indicate a market bottom and that stocks still have further to sell off.

Personally, I tend to split the difference. I make my buying plans on a position-by-position basis – for some of my stocks, I will add before their current bottoms if they sell off again. However, for others, I will wait until they break through to new lower-lows. For me, it all depends on when I last added to the position, how big the position is in the portfolio, and a variety of other factors. If the position is large enough already, I’ll wait for lower lows. If the position isn’t that large or if I would really like to add more at the current lows, I’ll do so.

Next week, things start to get exciting as the Fed meeting will reveal whether they decide to raise interest rates +0.75% as the majority of the market expects, or if they will shock everyone and raise the rates a historic +1.00%.

That’s the great thing about investing – it’s personal. You can adjust your targets based on your own personal risk appetite without needing to heed others’ perspectives (unless you want to).

Have a great week, everybody!

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

Has Bitcoin REALLY bottomed?!

Bitcoin rallied significantly this week, breaking through our previous weekly high of $22,490.54 and setting a new weekly high at $24,287.13. Additionally, Bitcoin’s mild pullback on its way up set a new weekly low at $20,750.10.

Is this the end of the Crypto Winter or just a short squeeze clearing the way for even further downside action?

I’ve learned never to try to predict Bitcoin’s next move as it can surprise both to the downside and the upside, however, given that the Downtrend trendline is still thousands of points away, many more realistic analysts point to how, in past Crypto Winters, Bitcoin has seen incredible rallies of more than +100% only to remain in a bearish trend and crash to new lower lows.

The Bullish Case

Bulls point to a variety of technical indicators showing that the bottom for this Crypto Winter is in and that Bitcoin is headed into a new bull market. From the newly-fashioned Pi Bottom / Pi Top indicator (which is questionable due to some apparent curve fitting issues), to Relative Strength Indicators and more, Bulls came out in droves this week to declare that Bitcoin is once again heading to the moon.

Additionally, when news broke on Wednesday that Tesla (TSLA) had dumped 75% of its Bitcoin holdings, Bulls pointed to the fact that Bitcoin did not sell off as a sign of strength. Personally, I never give much credence to the whims of Tesla CEO Elon Musk as he changes his mind more often than most people change their clothes. Additionally, it’s likely (though unreported) that Tesla lightened their Bitcoin load during the selloff in June, meaning the selling pressure has long been absorbed and is not a bullish (or bearish) sign.

The Bearish Case

Bears aren’t so sure the low is in. These analysts point to price action in past Crypto Winters where Bitcoin experienced huge bear market rallies only to lose all of its strength and crash back down to its lows. Some Bears continue to believe that not only will Bitcoin lose its current low of $17,567.45, but will lose the low from 2018, with a few even predicting positively unbelievable low-end targets of $500.00 per Bitcoin.

While I think $500 is an incredibly remote possibility, I would not be surprised at all to see Bitcoin break through $10K on the downside during this Winter. In fact, my worst-case scenario target remains around $4,000, right where Bitcoin pulled back to during the pandemic selloff in March 2020. Naturally, it could always pull further than that, but I believe $4K is as low as it will go this time around with any serious likelihood. My personal perspective is that it’s more likely Bitcoin will find support above that $4K low.

Bitcoin Trade Update

Current Allocation: 16.026% (Unchanged since last update)
Current Per-Coin Price: $23,780.95 (Unchanged since last update)
Current Profit/Loss Status: -0.461% (+11.870% since last update)

With no significant moves toward either my buying or selling targets, I spent the last week watching the rally and sitting on my hands. Given that I still have a rather bearish slant on the space, I’m in no hurry to add to my position and will wait for Bitcoin to pull back to some key trendlines below $19,000 before I add any.

If Bitcoin makes another attempt at its new weekly high slightly above $24,200, I will begin taking profits and reducing my allocation to protect against the extreme pullback below its $17,500 that some of the more Bearish analysts have been forecasting.

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:

0.463% @ $18,989
0.618% @ $18,188
1.236% @ $17,609
1.854% @ $16,236
2.472% @ $15,277
3.089% @ $14,366
3.707% @ $13,331
4.325% @ $12,254
4.943% @ $10,681
5.561% @ $9,356

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 (possible moves include drops of -90% or more and gains of +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 June 2022, Bitcoin crashed -75% to a low of $17,567.45.
• In July 2022, Bitcoin rallied +38% to high of $24,287.13.

Where will Bitcoin go from here? Truly, anything is possible…

What if Bitcoin’s headed to zero?