Summing Up The Week

As earnings season continued, the market was driven by two kinds of news this week: quarterly reports and anything related to the Fed. With the majority of news stories released this shortened holiday week leaning bearish, the hangover from the past two weeks’ worth of rally seemed to take effect as stocks sold off.

In fact, some analysts were even suggesting that … *gasp* … bad news is actually once again, in fact, bad news.

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

Market News

Wholesale prices fell 0.5%, more than expected

On Wednesday, the Labor Department released another potential sign that inflation may have already peaked, the Producer Price Index  (PPI) showed final demand prices dropped -0.5% for December, exceeding the -0.1% decline estimated by Dow Jones economists, reported CNBC. A sharp drop in energy prices provided the biggest decline in the reading, with energy crashing 7.9% for the month and wholesale gasoline prices alone falling 13.4%. 

Jobless claims unexpectedly fall

On Thursday, what would have been good news in any other economy, weekly initial claims for unemployment benefits dropped 15,000 to 190,000 versus the 214,000 expected, the positive figures scared the heck out of the markets as investors fear the Fed will not ease on its pace of tightening, reported CNBC.

Fed Brainard says rates higher for longer

In another example of the Federal Reserve Bank jawboning the market, Governor Lael Brainard said in an interview Thursday that interest rates will need to remain high despite signs showing inflation may be easing, reported CNBC.

“Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Brainard said in a speech she gave in Chicago. “This will enable us to assess more data as we move the policy rate closer to a sufficiently restrictive level, taking into account the risks around our dual-mandate goals.” 

Despite the Fed’s consistent messaging, investors and traders continue to try and anticipate a Fed pivot, where the Fed shifts from raising rates to cutting them. However, on Thursday, stocks sold off, potentially as a result of Brainard’s reiterated commentary.

Yellen takes extraordinary measures to avoid U.S. debt default

On Thursday, the Treasury Department started taking extraordinary measures after the United States hit its debt limit, reported CNBC. In order to ensure the federal government could continue paying its bills, Treasury Secretary Janet Yellen enacted what are referred to as “extraordinary measures” to maintain account liquidity.

Yellen told lawmakers that she believes these measures could permit the government to continue paying its obligations until early June, however Congress must “act in a timely manner to increase or suspend the debt limit.”

Should Congress fail to make the necessary arrangements, the United States failing to pay its obligations and falling into default would cause extreme economic damage on a global scale. 

I must emphasize how this situation cannot be taken lightly. In 2011, the last time the U.S. hit its debt limit, credit rating agencies lowered the rating of U.S. debt (despite the U.S. not defaulting… just nearly defaulting was enough for a credit rating decrease), which resulted in the S&P 500 selling off 15%.

Given that the market is already on shaky ground, a 15% selloff from here could escalate into something far worse, so keeping a careful eye on this situation in the coming months will be a priority.

Next Week’s Gameplan

As a long-term investor who doesn’t short the markets (I’m really bad at options plays… wait for this month’s Pandemic Portfolio update to learn more about that), the way I show my bearish outlook for stocks is to liberally take profits.

Over in the Speculation in Play portfolio update for this week, you’ll see that I was incredibly busy, taking profits in nearly every position in the portfolio and even eliminating at least three entirely. My ambitious selling is a result of both my bearish outlook, but also my intention to make the Speculation in Play portfolio more… well… speculative… since that was the portfolio’s intent.

In the meantime, I hope everyone is enjoying this crazy rally while also remembering to have a plan for both directions – what are you going to do if stocks go up tomorrow and what are you going to do if stocks go down tomorrow?

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

What the Bitzlato is going on with Bitcoin?

Bitcoin continued its explosive rally from the past few weeks into the weekend before finding new resistance at $21,650.21 set on Wednesday. Some in the community pointed to a news story about how U.S. and French authorities cooperated to take down a Russian crypto exchange called Bitzlato which had been allegedly responsible for money laundering, as reported by Cointelegraph.

Astute readers may notice that I have adjusted the new Downtrend (?) line to reflect Bitcoin’s amazing pop. The trend line is an exact parallel to the older Downtrend, a form of Technical Analysis often used to develop potential bearish and bullish channels (bearish, in this case). Until re-tested, it’s just a potential trendline, of course.

The Bullish Case

Bulls have a lot to crow about after Bitcoin’s epic rally off its lows. Many believe that not only is the Crypto Winter over, but that Bitcoin’s bull move indicates we’re at the beginning of the next Bull Market Cycle with higher all-time highs in store… some even believing this will happen before the end of 2023!

The Bearish Case

After months of success, Bears are now the ones licking their wounds. Believe it or not, many bearish analysts are still calling for Bitcoin to sell off to $10,000, and I read one report that believes $5,000 is a likely price target. Only time will tell on these predictions as the recent rally feels reminiscent of how Bitcoin recovered in 2019 to me.

Bitcoin Trade Update

Current Allocation: 18.513% (Unchanged since last update)
Current Per-Coin Price: $22,582.74 (Unchanged since last update)
Current Profit/Loss Status: -6.150% (+9.963% since last update)

Bitcoin’s huge rally wasn’t enough to get the price above my cost basis where I could take profits, but the crypto definitely has shown enough strength to motivate me to raise all of my buying targets, now starting back over $19K!

Despite Bitcoin’s run, there are no promises that the 2022 low will hold. Additionally, I think it’s highly likely that it will test its low around $15,500 in the coming months, so I’m approaching the sector with as much caution as I would if we were fully in the throes of a bearish selloff.

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:

0.027% @ $19,265
0.027% @ $18,540
0.027% @ $17,664
0.027% @ $17,057
0.027% @ $16,532
0.027% @ $15,622
0.055% @ $14,766
0.082% @ $14,028
0.109% @ $13,669
0.137% @ $13,089

Not Your Keys, Not Your Crypto…

In light of everything happening with brokerages, I no longer keep any of my crypto on an exchange and I only keep enough USD on the exchange to execute my next few buys. I use multiple cold wallets from the brands Ledger and Trezor to hold my crypto (click the links to access the direct sites, and I receive no affiliate benefits from these links).

Additionally, I have now divided my allocated USD between two different exchanges – Gemini and Coinbase – in case one (or both) becomes insolvent. Disclaimer: We both receive a bonus if you use either my Gemini or Coinbase referral links to open accounts.

Given everything that happened with FTX and Sam Bankman-Fried claiming customer funds were safe only to have it go completely bankrupt, I do not trust anyone in the space, even with Coinbase (COIN) being publicly traded (and one of my own Investments in Play positions).

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 $15,460.00.

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

What if Bitcoin’s headed to zero?

DISCLAIMER: Anyone considering speculating in the crypto sector should only do so with funds they are prepared to lose completely. All interested individuals should consult a professional financial adviser to see if speculation is right for them. No Get Irked contributor is a financial professional of any kind.