Summing Up The Week
Almost everyone in the professional space believed that this week’s inflation reading would come in better than expected, so when the report came in hot, the markets lost an entire week’s worth of progress in a matter of minutes.
Let’s take a look at the news that moved the markets this week…
Market News
“I’m Not Dead, Yet!” – CPI comes in hot, markets freak out
Everything was calm Monday, but, on Tuesday, the Consumer Price Index (CPI) showed inflation increased 0.1% in August overall and increased a whopping 0.6% excluding food and energy, destroying estimates and causing the market to collapse, reported CNBC. Economists had been expecting the index to decrease 0.1% and increase just 0.3% excluding food and energy.
“Today’s CPI reading is a stark reminder of the long road we have until inflation is back down to earth,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office. “Wishful expectations that we are on a downward trajectory and the Fed will lay off the gas may have been a bit premature.”
The stock markets sold off spectacularly, naturally, as it became apparent that the Federal Reserve will almost definitely hike interest rates by 0.75% rather than the more dovish 0.50%, and will likely continue significant hikes as long as inflation comes in high.
Crisis averted? Railroads reach labor union deal
Sometimes, no news is good news. On Thursday, news broke that the railroads reached a tentative agreement with their labor unions, avoiding what could have been epic devastation to the U.S. supply chain, reported CNBC. While it didn’t receive the amount of coverage I felt it deserved, the two groups coming to a contractual agreement was hugely positive news.
Many don’t realize that the rail system in the United States is responsible for the vast majority of the supply chain. A labor strike, which was very possible, would have destroyed the U.S. supply chain. In fact, some analysts predicted that such a strike would have caused a bigger negative impact to the U.S. economy than what happened to the supply chain as a result of COVID-19.
Regardless, the welcome news on Thursday of a resolution for the railroads meant at least one epic disaster was taken off the table.
FedEx warns, sends Market spiraling…
While some may think it strange that a single company, FedEx (FDX), in this case can send the stock market into a selloff, but FedEx is integral to nearly every part of the U.S. economy. So, when FedEx warned of weakness in global shipping volumes and preannounced poor earnings Thursday evening, the markets sold off in a big way on Friday, reported CNBC.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” CEO Raj Subramaniam said in the release. “We are a reflection of everybody else’s business, especially the high-value economy in the world.”
As a result, FedEx will cut costs, closing 90 office locations and five corporate offices as well as delaying hiring and canceling projects. Further exacerbating the situation, Subramaniam stated that he foresees a potentially huge global recession on the horizon affecting every sector of the world’s economy. Yikes.
Next Week’s Gameplan
With inflation being far from dead, the expectations for a 0.75% interest rate hike next week are virtually certain with some predicting the Fed will opt for an epic 1.00% rate hike in an effort to tame the Inflation Dragon.
Regardless of the Fed, the combination of negative economic news and the seasonality of the September-October one-two punch means we’re still firmly in Buying Season, not Selling Season, as lower-lows are the likely outcome.
That being said, remain patient and vigilant as always. Make your plan in advance, buy in stages, and keep calm and carry on.
I’ll see you here 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
Important Disclaimer
Get Irked contributors are not professional advisers. Discussions of positions should not be taken as recommendations to buy or sell. All investments carry risk and all readers must accept their own risks. Get Irked recommends anyone interested in investing or trading any asset class consult with a professional investment adviser to determine if an investment idea is suitable to them and their investment goals.
Bitcoin Price (in USD)
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Weekly Change
Bitcoin Price Action
Bitcoin – absolutely NOT an inflation hedge…
Long reputed to be a hedge against inflation by Bitcoin maximists, Bitcoin showed its true colors once more this week when it sold off spectacularly to the minute of the release of the higher-than expected Consumer Price Index (CPI), a noted inflation gauge.
If Bitcoin were a true hedge against inflation, the price should have skyrocketed following a worse inflation reading than hoped, not collapsed. Instead, Bitcoin maintains its near-direct correlation to high-growth tech stocks, selling off in fears that the Federal Reserve Bank isn’t done raising rates by a long shot.
Initially, Bitcoin continued last week’s rally, breaking through the weekly high at $21,443.63 and even breaking through the monthly high at $21,925.00 before finding resistance right at, you guessed it, the Downtrend line with a new high set at $22,800.00.
The double-whammy of technical resistance and the hotter-than-expected CPI report sent Bitcoin spiraling out of control, further cementing the Downtrend line as the indicator of where the macro environment plans to take crypto for the moment.
The Giant Nothing Burger that was Ethereum’s shift from proof-of-work to proof-of-stake (called “The Merge”) took place late Wednesday evening and did absolutely nothing to help the situation. In fact, the Merge ended up being a traditional “Buy-the-Rumor, Sell-the-News” event as traders beat the crap of out of the Ether altcoin following the Merge, sending Ether tumbling even further and harder than its Big Brother Bitcoin.
Bitcoin crashed throughout the week before establishing weekly support on Friday at $19,446.62, but I don’t expect that to hold over the weekend when less trading volume increases volatility, and bear traders may take the opportunity to push Bitcoin lower.
The Bullish Case
Bulls are licking their wounds this week from the double gut punch of the further denouncement of the idea that Bitcoin is an inflation hedge (to be clear, it absolutely is not a hedge against inflation in any way) and the Most Significantly Insignificant Crypto Catalyst of 2022 that that was the Ethereum Network’s Merge.
Bulls continue to claim the crypto sector is just consolidating as it prepares for its next run to new all-time highs despite every bit of evidence pointing to the contrary…
The Bearish Case
After last week’s shocking bull rally to nearly $23K, the Bears were initially on their heels going into this week… up until Tuesday’s CPI report. Once more, every factor works in the Bears’ favor with no positive catalysts on the horizon for crypto now that the Merge has passed, rising inflation, bad macroeconomic conditions, and a poor geopolitical outlook. The Bears predict further downside, and I have no reason to argue them.
Bitcoin Trade Update
Current Allocation: 16.026% (Unchanged since last update)
Current Per-Coin Price: $23,656.22 (Unchanged since last update)
Current Profit/Loss Status: -17.795% (-7.327% since last update)
Nothing spectacular to report this week. Despite Bitcoin dropping below $20K, my next buy target remains at $18,740, slightly above the low of Bitcoin’s selloff from two weeks ago, as there’s nothing indicating the crypto is safe from testing its lows, at least.
Personally, I expect the crypto to break through its recent lows and test its 2022 lows down around $17,500, so my subsequent buy is for a more substantial quantity should 2022’s bottom hold.
If Bitcoin breaks through 2022’s bottom, my quantities shrink for a few buys as I expect much lower lows if 2022’s low doesn’t hold. The shock of a 2022 low break will likely send through the newbies in the crypto trading space has a high chance of causing a very epic pullback in Bitcoin, with some of the most bearish analysts predicting the Pandemic Bottom in the $3,900 range to be very much in sight.
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:
0.141% @ $18,734
1.549% @ $17,616
0.423% @ $17,216
0.563% @ $16,705
0.845% @ $15,911
1.127% @ $15,208
1.690% @ $14,055
1.408% @ $13,248
1.408% @ $11,571
1.408% @ $10,143
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.
- In September 2022, Bitcoin dropped -27% to a low of $18,527.00.
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.
