Summing Up The Week

To the uninitiated, it may seem obvious that even midterm elections can have an effect on the stock market, however, counter to what one might expect, the market actually isn’t partial to one party or another.

While different sectors will perform better depending on who’s in office (oil and defense stocks for Republicans, clean energy and ESG stocks for Democrats), the market actually prefers something totally unrelated to party politics – gridlock.

The market prefers to know what’s coming, and if neither party can pass any new legislation, that means the market doesn’t have to worry about government as a factor facing stocks. Weird, I know.

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

Market News

Bitcoin crashes on news of brokerage liquidity crunch

Even though cryptocurrency is becoming a more common term to everyone, it’s still rare when Bitcoin makes it to the front page of CNBC, but it certainly spiced up Election Day when Bitcoin plummeted more than 20% in a few hours following news that Sam Bankman-Fried, renowned CEO of FTX and considered by some the “J.P. Morgan” of the crypto world, reached out to Binance to buy the exchange to prevent a “significant liquidity crunch,” reported CNBC.

Since Bitcoin’s initial epic crash in May kicked off the current Crypto Winter, Bankman-Fried had been buying up downtrodden players in the space, akin to how J.P. Morgan helped prevent a severe bank crash in the early 1900s by buying up smaller banks to prevent them from going under (this was before the Federal Reserve was a twinkle in the government’s eye).

However, it’s now become apparent that Bankman-Fried is not nearly as solvent as it appeared, as he came to an agreement on Tuesday morning with Binance CEO’s Changpeng Zhao to fully purchase FTX.

However, on Wednesday, Binance backed out of the rescue of FTX potentially leaving the crypto space open for an even deeper dive, reported CNBC.

News of a significant liquidity crunch have a negative effect on Bitcoin and the crypto space when the sector is performing well, so naturally the entire space sold off epically starting on Tuesday.

Has inflation finally peaked? CPI lower than expected

On Thursday, the Bureau of Labor Statistics released data showing the Consumer Price Index (CPI) increased 0.4% in October and 7.7% from a year prior versus Dow Jones estimates of 0.6% and 7.9%, reported CNBC. Yes, that means inflation is still increasing, however given that it increased less than was expected, the markets rallied pretty spectacularly on the news.

“There is something very key here with regard to today’s improvement in used car prices,” wrote Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock. “It confirms what some of the important indicators have been telling us recently: that inflation has begun to moderate from the extreme levels of the past few months.”

Mixed election results leave the market confused…

The “Red Wave” many pundits expected (an overwhelming number of Republicans elected) never happened, and this caught the market off-guard. Additionally, many of the elections throughout the state took several days to resolve, resulting in the market experiencing volatility from Tuesday through Thursday.

As mentioned above, the market actually doesn’t have a preference for one political party over the other, the market prefers gridlock. However, CNBC reported that resolving the elections – and potential runoff elections – might mean no settled decision for which party controls the Senate until December.

Next Week’s Gameplan

With all the macroeconomic and geopolitical concerns, there are more than enough catalysts to ensure that the market volatility we’ve seen for almost all of 2022 isn’t going anywhere anytime soon. Accordingly, the plan always remains the same – I have a plan for if the market goes up tomorrow, and I have a plan if the market goes down tomorrow… in every one of my positions and investments.

In the meantime, the past few weeks have certainly provided a lot of excitement, so grab the popcorn and let’s see what next week brings!

See you all 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

Maybe history DOES repeat itself…

In a bizarre case of history repeating itself, Bitcoin started crashing epically this week on Tuesday, November 8, four years to the day of the start of its stomach-flipping -52.15% selloff in 2018 which started on November 8, 2018. Back then, Bitcoin was in the $6,000-$6,300 range and crashed down to $3,130 in December.

And, just like in 2018, where a story about disagreements over the upcoming Bitcoin Cash fork was blamed as the catalyst, this round’s crash started when news broke out that Sam Bankman-Fried, noted CEO of the crypto brokerage FTX, reached out to Binance (another brokerage) for help to protect against a “significant liquidity crunch.”

Then, on Wednesday, CNBC reported that Binance backed out of rescuing FTX, leaving the entire crypto industry in an even more precarious position.

On Tuesday, in less than 24 hours, Bitcoin plummeted -24.99% from a daily high at $20,678.35, crashing through the key support of 2022’s low at $17,567.45, before making a new low at $15,512.00.

The Bullish Case

Believe it or not, Bulls point to the low of the selloff as the reason to have faith in the space because of the subsequent bounce. However, these Bulls must have not been around for the 2018 crash, as Bitcoin briefly found support for even a few days before flipping over for another death-defying crash to new lower lows repeatedly before bottoming in December.

The Bearish Case

It’s indisputable – the Bears were right. At this point, the rest of the Bearish Case must be closely attended to, with the potential for a drop of more than 50% from Bitcoin’s recent high at $21,478.80, giving us a low-end price target in the mid $10Ks (if not lower, as a drop of more than -52% is not unheard of during Bitcoin’s past crypto winters).

Bitcoin Trade Update

Current Allocation: 17.949% (+1.411% since last update)
Current Per-Coin Price: $22,819.13 (-2.712% since last update)
Current Profit/Loss Status: -23.534% (-14.002% since last update)

Since I have been planning for the eventuality of an epic crash in Bitcoin for well over a year now, I was prepared for this week’s selloff with many buy targets getting hit, starting at $18,436.80 and careening down to my lowest fill at $15,587.10.

Close readers know that although I planned several buy orders, I used tiny quantities all the way down as I do believe we could see Bitcoin in the $10K range by December.

My combined buys gave me an average price of $17,312.70 and lowered my per-coin cost -2.712% from $23,455.26 to $22,819.13. The buys raised my allocation +1.411% from 16.538% to 17.949%. I will continue to make small quantity buys as Bitcoin sells off  as I continue to believe there are much lower lows in store for the entire sector.

For anyone considering entering the space, as always, I recommend extreme caution and be prepared to lose every single penny you put into this crazy, crazy space.

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:

0.124% @ $16,877
0.124% @ $16,505
0.124% @ $16,201
0.124% @ $15,905
0.124% @ $15,635
0.124% @ $14,925
0.124% @ $14,580
0.124% @ $14,255
0.371% @ $13,959
0.742% @ $13,089

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 November 2022, Bitcoin crashed -78% to a low of $15,512.00.

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

What if Bitcoin’s headed to zero?