Summing Up The Week

While there were some significant earnings reports and data releases this week, the priority for the stock market was the Federal Reserve’s annual retreat in Jackson Hole, Wyoming, with Fed Chair Jerome Powell speaking on Friday.

In other words, the markets were jumpy all week as investors and traders waited for the “big” news event, ignoring much of the rest of the week’s news.

Let’s take a look at the news that did (or didn’t) move the markets this week… 

Market News

Home prices fall for 1st time in 3 years

On Wednesday, Black Knight, a mortgage firm, reported that home prices declined 0.77% from June to July, the first decline since 2019 and a potential indication that the housing market is, indeed, in recession, reported CNBC. In addition to the first decline in three years, it’s also the largest decline since January 2011, the second-largest of all time, with the largest-ever one-month decline being 0.9% in July 2010 during the Great Recession.

Real estate experts point to the combination of skyhigh house prices and rising mortgage rates as resulting in the pullback. “We’ve been advising for quite some time that the dynamic between interest rates, housing inventory and home prices was untenable from an affordability perspective, and at some point, something would have to give,” said Andy Walden, Vice President of Enterprise Research and Strategy at Black Knight. “We’re now seeing exactly that, with July’s data providing clear evidence of a significant inflection point in the market [and] further price corrections are likely on the horizon as we move into what are typically more neutral seasonal months for the housing market.”

Powell warns of ‘some pain’ ahead…

On Friday, the markets got what everyone wanted – Federal Reserve Bank Chairman Jerome Powell spoke at the Fed’s retreat in Jackson Hole, Wyoming and warned to expect some pain ahead as the central bank continues to fight inflation, reported CNBC. Despite the fact that his speech should have come to as a surprise to no one, the markets, which had been rallied into Friday, sold off following his comments.

Powell reiterated that the Fed intends to use whatever tools it has (hiking interest rates and tightening its balance sheet) to fight the rising inflation. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in prepared remarks. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

The Fed’s target inflation rate remains 2% and with data showing actual inflation (including real rent prices) at in excess of 10%, the Fed has a long way to go. “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” said Powell. “Restoring price stability will likely require maintaining a restrictive policy stance for some time; the historical record cautions strongly against prematurely loosening policy.”

Next Week’s Gameplan

With August rapidly coming to an end, trade volume in the markets will increase dramatically in the coming weeks as traders and investors return from summer vacation. 

As I’ve referenced for a few updates, my gameplan revolves around seasonal weakness. With the S&P 500 already pulling back more than -4.5% from its recent high this week alone, the historical pullback of 4.5-20% from summer highs to October lows is very much in play.

The current bearish sentiment leads me to believe we’ll likely see a more substantial pullback this year compared to the 4.5% low since, of course, we’ve already seen the minimum 4.5% pullback confirming the trend.

As always, have a plan prepared for both directions and I’ll see you next Friday!

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

Everything was quiet until…

After Bitcoin’s -17.58% drop low last week, both Bulls and Bears were eagerly awaiting Bitcoin’s next move. Bitcoin took much of the week off, trading in a range, until Friday following the Federal Reserve press conference when Bitcoin collapsed again, breaking through the prior $20,715.00 weekly low before setting a new low at $20,524.31, a low that I don’t anticipate being very strong.

Let’s take a look at the bull and bear case…

The Bullish Case

Bulls continue to argue that the bottom is in for Bitcoin and that there is no way we’re going to see $10K Bitcoin ever again. To back up their case, many of these bullish analysts refer to a wide variety of irrelevant indicators and technical analysis to support their case. Even the most bearish of bulls believe the lowest Bitcoin can go is $13K.

The Bearish Case

Bears continue to point to 2018’s 50% crash from the $6,000 “bottom.” At that time, Bulls were claiming Bitcoin would never go below $6K, referring to a wide variety of irrelevant indicators and technical analysis to support their case. To paraphrase Mark Twain, history doesn’t repeat itself, but it sure does rhyme.

If Bitcoin really has bottomed, that’s great – I have a decent position on. However, I vividly remember siding with the bulls in 2018 only to have my face ripped off when Bitcoin dropped 50% from its low in the $6,000s all the way down to $3,130. From that point on, I swore I’d rather have a very small, extremely profitable position, than be all-in betting on the bull run only to have an asset cut me in half.

Bitcoin Trade Update

Current Allocation: 15.769% (+0.128% since last update)
Current Per-Coin Price: $23,736.61 (-0.104% since last update)
Current Profit/Loss Status: -12.884% (-3.521% since last update)

When Bitcoin’s selloff continued this week, my next buy order triggered at $20,989.80. The small buy lowered my per-coin cost -0.104% from $23,761.21 to $23,736.61 and increased my allocation +0.128% from 15.641% to 15.769%.

From here, it’s a waiting game to see where Bitcoin decides to head next.

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:

0.287% @ $19,803
0.287% @ $19,030
0.430% @ $18,333
0.574% @ $17,609
0.860% @ $16,974
1.147% @ $16,084
1.434% @ $14,952
1.721% @ $13,841
2.008% @ $12,931
2.295% @ $10,930

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 August 2022, Bitcoin rallied +44% to a high of $25,214.57.

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

What if Bitcoin’s headed to zero?