Summing Up The Week

Bad news still isn’t returning to being, well, bad news this week.

After the markets saw an unbelievable rally (a one-day rise not seen in more than two years) following the Fed’s announcement that rate hikes may slow on Wednesday, the U.S.’s Gross Domestic Product (GDP) report on Thursday showed the country has been in a recession (as defined by textbooks and economists, not the White House, apparently…) for the entirety of 2022.

The markets continued their rally following the GDP report, and the rally only strengthened after the bell when Apple (AAPL) and Amazon (AMZN) both reported blowout earnings for the Q2 of 2022.

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

Market News

Pending home sales fell 20% in June

On Wednesday, the National Association of Realtors announced signed contracts to buy existing homes dropped 20% in June compared to a year ago, reported CNBC.

This figure represents the slowest rate of sales in nearly 11 years (Sept 2011), excepting for effects from the COVID-19 lockdown, of course. Additionally, pending home sales fell more than expected, too, dropping -8.6% in June versus an expected 1% drop.

Experts and analysts pointed to the spike in mortgage interest rates as the culprit for discouraging home buyers. “Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said Lawrence Yun, chief economist for NAR. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”

Fed raises rates +0.75%, gives positive outlook

On Wednesday, the Federal Reserve announced it would enact its second consecutive 0.75% rate hike in a row in its ongoing attempt to fight inflation, reported CNBC. While rumors had swirled of a potential 1.00% (or “100 basis point”) hike, the Fed opted for the lesser hike which had been telegraphed months in advance and was considered the “expected” outcome from the Fed meeting.

This hike brings the benchmark overnight rate to 2.25%-2.5%, the highest its been since December 2018 when Chair Jerome Powell’s lockstep hikes caused the S&P 500 to sell off nearly 20% in a matter of weeks. The benchmark rate directly affects mortgage rates, auto loan rates, and credit card rates (i.e. a higher benchmark rate means higher rates for all levels of consumer and enterprise borrowing).

In a statement, the Fed pointed to softening spending and production indicators, however still wants to keep an eye on the strong job market. “Job gains have been robust in recent months, and the unemployment rate has remained low,” the committee said in its statement. Additionally, Fed officials again described inflation as “elevated,” pointing to supply chain issues and higher food and energy prices as providing price pressure.

During his press conference, Powell gave a dovish outlook on the economy, stating that the United States is not currently in a recession and hinting that the Fed may be planning to slow tightening. “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said.

From here, the market enters a two-month hiatus from potential hikes as the Fed meets for its annual retreat in Jackson Hole, Wyoming in August; changes in rates do not historically happen again until the Fed’s September meeting. In the event of unforeseen economic conditions, the Fed can make emergency changes to rates between meetings, however, such circumstances are incredibly rare, so the market will likely not expect any additional adjustments to the benchmark rate until mid-September.

The markets rallied pretty spectacularly to close out the day after the Fed’s announcement with the Dow Jones closing +1.37%, the S&P 500 popping +2.62%, and the NASDAQ surging +4.06% leaving many analysts wondering if the bottom of this Bear Market truly is in.

U.S. in recession, regardless of what White House claims

On Thursday, the Bureau of Economic Analysis reported the U.S. economy contracted -0.9% for the second quarter in a row, the textbook indicator of recession, reported CNBC. A recession occurs when a country’s economy experiences declining growth (or shrinkage) for two consecutive quarters, and Thursday’s numbers indicate the U.S. economy has been in recession for the first half of 2022.

Over the weekend, the White House released an illogical blog post claiming that a recession is not what a recession has been defined to be for decades in a thinly-veiled defense to save face against the looming midterm elections. I am a lifelong Democrat, and even I cannot defend this obvious, desperate attempt for the Biden Administration to try to counteract the current economic conditions.

Despite the fact that the U.S. is in a textbook-defined recession, a rose by any other name is still a rose. The American public is struggling against inflationary conditions not seen in decades and a weakening economy. Prices are out of control. For any leadership to cover their eyes and ears while wasting time trying to argue the sky isn’t blue shows an administration that could potentially be woefully out of touch.

Inflation gauge makes biggest move since January 1982

The negative inflation data keeps on rolling in. On Friday, the Bureau of Economic Analysis reported the Personal Consumption Expenditures price index (PCE) rose 6.8% in June, the biggest 12-month move since January 1982, reported CNBC. The Fed closely follows the PCE as one of their key indicators of inflation, and a move of this magnitude could lead the Fed back to a more hawkish stance as inflation shows no sign of weakening.

“The rest of the economy might be slowing down, but wages are speeding up,” said Nick Bunker, economic research director at job placement site Indeed. “Competition for workers remains fierce as employers have to keep bidding up wages for new hires. These red-hot wage growth statistics may fade in the near term, but there’s a long way for them to drop.”

Wage gains, while great for the American worker, typically are not a good sign for inflation in the economy. “Wage gains at this pace are far too high for the Fed, because they would require implausible rapid productivity growth in order to be consistent with the inflation target in the medium-term,” wrote Ian Shepherdson, Chief Economist for Pantheon Macroeconomics.

Currently, the Fed is expected to raise interest rates by 0.50% in September, according to the CME Group’s FedWatch tracker. Following the PCE report, though, the probablility for another 0.75% hike like the one we saw earlier this week rose to 38%.

Next Week’s Gameplan

Even with July having ended, the summer season of volatility remains in play all the way through Labor Day, so, yes, we have another month of crazy before we get back to normal levels of trading volumes in September.

Despite all the volatility, the gameplan remains the same, however. With the market seeing pretty substantial rallies, some of my positions actually are approaching profit-taking targets, while other sectors which are particularly hard-hit are approaching points where buying will be prudent.

Remain vigilant, remain patient, and I’ll see you here 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

The “Fed Makes Everything Rally” Rally

On Monday and Tuesday, Bitcoin dropped through the Next Support of Last Resort trendline and tested last week’s low of $20,750.10. While the price did break last week’s low, the break was miniscule (less than 0.17%) which indicates a holding of the support with a reaffirmed weekly low of $20,715.00 (in Technical Analysis (TA), a break of support of such a small relative percentage does not indicate a break of the pattern, rather just a reinforcement of the existing support at the slightly lower wick level).

Bitcoin also set a new monthly high, breaking through $24,287.13 briefly early Friday morning to set our new high at $24,450.00. 

The Bullish Case

Bulls are nearly euphoric that inflation continues to rage, with many Bitcoiners still touting the crypto as an inflation hedge (even though quite literally all evidence counters that claim). Others point to the Ethereum Network’s recently-announced rollout of proof-of-stake instead of proof-of-work as bullish news that will lift the crypto sector as a whole.

The Bearish Case

Bears remain patient and point out that there is a significant amount of resistance above Bitcoin’s price levels. In fact, a rally to the $30K-32K range would not indicate that the current Crypto Winter is over as past winters have seen extreme bull rallies far before Bitcoin has bottomed. Many Bears point to 2018 where Bitcoin pulled back ~70% from its then-high of $20K to around the $6K mark before dropping a total of slightly more than -84% to ~$3130.

Ominously, $17,750, the current 2022 low, represents a selloff of about ~70% from $69K, and an -84% selloff akin to 2018’s gives a low-end price target of $10,800-$11,000. Yikes.

Bitcoin Trade Update

Current Allocation: 15.897% (-0.129% since last update)
Current Per-Coin Price: $23,797.16 (+0.068% since last update)
Current Profit/Loss Status: -1.341% (-0.880% since last update)

When Bitcoin rallied through my per-coin cost once more, I decided it was time to start slowly reducing my position size by taking small amounts of profit with my first sale going through at $24,132.25 on Thursday.

You may notice that my per-coin price actually increased this week, and that’s a result of transfer fees affecting my trade as I transfer crypto to and from cold wallets and the exchange (I no longer keep any crypto, even what I have in trades, on exchanges after witnessing the failure of Celsius and Voyager taking all of their users’ crypto with them as they declared bankruptcy – and, yes, Coinbase, Gemini, and Robinhood Crypto all have similar User’s Agreements that say they can utilize their users’ crypto to pay off their debts).

My per-coin price “increased” +0.068% from $23,780.95 to $23,797.16 even after the profit-taking sale due to those darn transfer fees (although I believe I’ve mostly mitigated the fees from this point). The sale decreased my allocation -0.129% from 16.026% down to 15.897%.

From here, my next sell target is right around $26,000, slightly below the next significant point of resistance.

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:

0.160% @ $19,534
0.160% @ $19,085
0.160% @ $18,306
0.160% @ $17,657
0.642% @ $16,236
0.963% @ $15,277
1.284% @ $14,442
1.605% @ $13,365
1.925% @ $12,317
2.567% @ $10,743

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 +39% to a high of $24,450.00.

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.