Summing Up The Week

While a brief yet substantial relief rally kicked off the week on the back of hopes that Australia’s Central Bank may be pivoting as it reduced the rate hike expected by analysts, the rally was stalled throughout the rest of the week on the back of inflationary news with a big oil production cut and more new jobs created in September than expected.

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

Market News

Another Bank Crisis?! Credit Suisse’s ‘Lehman Moment??’

Rumors swirled over the weekend of a major European bank on the brink of collapse, and, early in the week, many news outlets started to report that Credit Suisse (CS) was in financial straits. On Monday, the Credit Suisse CEO Ulrich Koerner reassured investors that the bank has a “strong cpaital base and liquidity position” as market historians pointed out the Lehman Bros CFO said the same thing… shortly before the bank collapsed entirely, reported CNBC.

While it may be easy to point out that the vast majority of Credit Suisse’s business takes place out of the United States, it’s equally important to remember how the entire global financial system is interconnected. In other words, if one of these major banks collapses, the systemic effects would likely cascade across the entire world’s system.

“The many options rumored to be considered by CS, including exit of U.S. investment banking, creation of a ‘bad bank’ to hold risky assets, and capital raise, indicate a huge overhaul is needed to turn around the bank, in our view,” said Firdaus Ibrahim, a CFRA Equity Analyst in a note released Monday. “We believe that the negative sentiment surrounding the stock will not abate any time soon and believe its share price will continue to be under pressure. A convincing restructuring plan will help, but we remain skeptical, given its poor track record of delivering on past restructuring plans.”

Still others argued that Credit Suisse is not remotely in the same situation as Lehman Bros was before the 2008 Great Financial Crisis, even suggesting now would be a good buying opportunity in CS.

“Banks being highly leveraged entities are exposed much more to sentiment of clients and most importantly to providers of funding, and that’s the challenge for Credit Suisse to thread that delicate path between addressing the interests of providers of, especially, wholesale funding, and then also the interests of equity investors,” said Johann Scholtz, an equity analyst at DBRS Morningstar. The other thing that is much different compared to the Great Financial Crisis – and that’s not just the case only for Credit Suisse – is that not only are their equity capital levels much higher, you’ve also seen a complete overhaul of the structure of banking capitalization, something like buy-inable debt that’s come along, also improves the outlook for the solvency of banks.” 

Job Openings Dropped -10% (1.1M) in August

We continue to be deep in “bad news is good news” territory when the markets rallied huge on Tuesday following news that the Job Openings and Labor Turnover Survey (JOLTS) showed a 10% drop in job openings in August – 10.05 million versus the 11.1 million expected, reported CNBC.

In a non-inflationary world, a decrease in job openings (an indicator of a weakening economy) would portend negative effects to come, however, in our crazy world where a Federal Reserve Bank wants to cut deep, a weakening economy is a sign that the Fed’s fight against inflation may be working.

“Job openings took a major dive in August, falling by more than about 1 million, but they still total more than 10 million. That and other data point to a jobs market that’s still challenging for employers,” said Robert Frick, corporate economist at Navy Federal Credit Union. “But judging by the drop in openings and the high number of Americans who entered the labor force in August, almost 900,000, the worst of the tight labor market is over.”

OPEC+ cuts oil production by 2M barrels per day

On Wednesday, the OPEC+ oil cartel agreed to cut production by 2,000,000 barrels a day in an effort to increase crude prices despite requests from the U.S. to pump more, reported CNBC.

The uninitiated worry that decreased oil production will cause inflation in gasoline prices, however that’s simply the tip of the iceberg – energy is the backbone of the global economy; quite literally everything needs energy in order to be produced, both products and services. A substantial rise in oil prices will definitely cause inflation to persist.

Energy analysts expressed frustration with the cartel’s decision. “Further squeezing already-tight supplies will be a slap in the face for consumers. The selfishly motivated move is aimed purely at benefiting producers,” said Stephen Brennock, Senior Analyst at PVM Oil Associates in London. “In short, OPEC+ is prioritising price above stability at a time of great uncertainty in the oil market.”

Other analysts predict that West Texas Intermediate (WTI) oil’s per-barrel price, currently in the $80-90 range, could escalate back to $100. “Due to the decision, volatility will likely return to the market, and despite concerns about the resilience of the global economy, the oil market is tight, all of which should serve as a tailwind for prices in the fourth quarter,” said Rohan Reddy, Director of Research at Global X ETFs. “[While $100 oil is possible], a more likely scenario in the short term is that oil prices hover in the $90 to $100 range as the market digests economic data releases.”

Businesses added 208K jobs in September, more than expected

In another case of good-news-is-bad-news, payroll processor ADP reported businesses added 208,000 jobs in month, in excess of the 200,000 estimated, reported CNBC. Once again, since an increase in jobs shows a strengthening economy, a higher number of new jobs indicates to the Fed that persistent inflation remains, demanding additional rate hikes to get it in line.

As always, the big report, the Labor Department’s nonfarm payrolls, comes out on Friday with estimates for a growth of 275,000 jobs in September, so we’ll have to wait and see what happens when the market digests that report, too.

Payrolls rise 263K, unemployment falls to 3.5%, Fed growls

Turns out ADP was actually accurate this month (usually, they’re the opposite of the Labor Department), as the Labor Department reported 263,000 new jobs in September and an unemployment rate of 3.5%, down 0.2% from the past month, reported CNBC.

While the new job creation was actually less than the 275,000 estimated by Dow Jones, believe it or not, a decreasing unemployment figure is not what the stock market wanted because it indicates the job market is still strong and that the Federal Reserve Bank still has rate hike work to do to fight inflation.

“Depending on your view of optimism vs. pessimism, on the economy, there’s a little bit of something for everyone in this report,” said Liz Ann Sonders, Chief Investment Strategist at Charles Schwab. “Obviously, the market is not happy, but the market is not happy in general these days.”

For those analysts hoping the Fed might opt for the lower 0.50% rate hike versus a more aggressive 0.75%, the data flipped the forecast to the more painful hike. “This puts the nail in the coffin for another 75 [basis point rate increase] in November,” said Jeffrey Roach, Chief Economist at LPL Financial.

Next Week’s Gameplan

So far, October is certainly living up to its seasonal reputation of being an incredibly volatile month. While September is notorious for being the worst month of the year, October’s price action often whipsaws, even if the stock market closes the month higher than where it started the month.

Of course, my gameplan remains the same, especially in volatile times – have a plan for what to do if the market rallies and a plan for what to do if the market sells off. Oh, and always remember that doing nothing at all is a legitimate course of action, particularly in uncertain times like these.

I’ll see you all back 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

Bitcoin Price Action

Home, home on the range…

For the most part, Bitcoin traded within a range over the past week. While it did break through the past weekly high at $20,383.15, the break was slight, at best, with a new weekly high set at $20,479.43. The crypto did make a higher weekly low, up from $18,487.00 last week to set a new low at $18,923.81 this week.

Friday’s positive labor market report flipped the bullish build from earlier in the week, causing Bitcoin to sell off and head back down toward its weekly low.

The Bullish Case

Bulls point to the Australian central bank’s pivot on rates as an indication that the Fed will pivot, thus weakening the dollar and kicking off the start of the next bull run in Bitcoin. Naturally, the bulls are getting “bulled up” over the potential for new all-time highs.

The Bearish Case

Bears remain confident that the next big move for Bitcoin remains to the downside. While this week’s price action was bullish, Bitcoin has failed to make any substantial bullish breakout, the entire macro trend remains bearish, and, historically, Bitcoin often sees its most epic crashes within the 4th quarter of the year… exactly the time of year that we just entered this week.

Bitcoin Trade Update

Current Allocation: 16.282% (Unchanged since last update)
Current Per-Coin Price: $23,556.39 (Unchanged since last update)
Current Profit/Loss Status: -16.951% (-0.002% since last update)

I’m not going to lie – I prefer volatile markets. And, oddly enough, I actually don’t care which way the market is volatile, bullish or bearish. I just like seeing price action because it means I’m either buying or selling. 

Whenever an asset class – stocks, crypto, bonds, or anything really – trades within a range, it’s a massive yawner for me because I have to sit on my hands and ignore it. Of course, that’s exactly what happened this week, and that’s why I have no moves to report.

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:

0.139% @ $18,713
0.139% @ $18,402
0.139% @ $17,774
0.139% @ $17,609
0.278% @ $17,071
0.555% @ $16,388
1.110% @ $15,629
1.943% @ $14,207
1.388% @ $13,510
1.388% @ $12,075

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 -28% to a low of $18,153.13.

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

What if Bitcoin’s headed to zero?