Summing Up The Week

The seasonal volatility of August refuses to let up as the market threw a whole bunch of mixed messages this week. From deflation in China to a strong U.S. consumer combined with a Bitcoin crash of epic proportions… it was quite the week!

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

Market News

China unexpectedly cuts interest rates

On Tuesday, the Peoples’ Bank of China cut the interest rates on loans to banks from 2.65% to 2.50% in an effort to stimulate its struggling economy, a move no analyst anticipated, reported CNBC. The reopening of China’s economy earlier this year as the country recovered from COVID lockdowns did not produce the level of consumer activity most economists had been expecting, and the Chinese economy has been struggling since.

“There’s no hiding from the fact we’ve had a very horrible July — not just the data we’ve seen coming up to this, but also today’s data,” Louise Loo, lead economist at Oxford Economics, told CNBC’s “Street Signs Asia” on Tuesday. “In a crisis such as this … you can’t really call it a consumption crisis or investment crisis. It’s really a confidence crisis,” she noted, adding the best way to tackle it “is to be very quick on the stimulus.”

Retail sales increase 0.7% in July, better than expected

On Tuesday, the advanced retail sales report showed an increase of 0.7% for July, better than the 0.4% estimate, reported CNBC. This report shows that the American consumer is spending more than expected which implies a strong consumer.

However, it’s important to also note that household credit card has exceeded $1 trillion; regardless of whether or not the American consumer is spending, perhaps the more critical question is whether or not the American consumer should be spending. 

Additionally, the overly strong consumer is another problem with the Federal Reserve whose intention is to reduce consumer spending in an effort to cool the economy. This retail sales figure may motivate the Fed to raise interest rates further as the economy is stronger and more resilient than most were expecting.

Minutes show Fed officials see “upside risks” to inflation

On Wednesday, the FOMC minutes for the Federal Reserve’s July meeting showed officials anticipate “upside risks” to inflation that may necessitate additional interest rate hikes, reported CNBC.

“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated. “In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time.”

Combine the FOMC minutes with the retail sales numbers, and a picture of an extremely strong economy that needs to be cooled is certainly being painted. While we will hear more from Fed Chair Jerome Powell from the FOMC’s annual retreat in Jackson Hole, WY, the next official meeting of the Fed isn’t until mid-September where we will learn whether or not the Fed will pause or hike yet again.

Retail earnings show mixed picture of the consumer

With the big retailers reporting earnings this week, analysts were hoping for more insights on the strength of the American consumer. What we got, however, was a muddled outlook.

On Tuesday, Home Depot (HD) reported better than expected earnings but also warned the consumer is holding back on big-ticket purchases

On Wednesday, while Target (TGT) beat on adjusted earnings, missed on revenue, and cut its full-year forecast, TJX Companies (TJX) – the discount retailer – beat expectations and raised full-year forecasts on the back of consumers trading down and looking for bargains for relief from inflation.

Finally, on Thursday, the big kahuna Walmart (WMT) beat expectations on both sales and earnings AND raised its full-year guidance, even seeing modest improvement in “big ticket” item purchases where Home Depot saw the opposite.

So, what’s the verdict?

Keeping with the metaphor, the jury’s still out. While Walmart on its own is typically a good barometer for the U.S. consumer, that was quite a mixed bag of earnings, so it’s a matter of where things go from here to give us more insight into how strong the economy remains headed forward.

Next Week’s Gameplan

Savvy long-time readers may have noticed that my gameplan really never changes – I have a plan for both directions: where will I take profits if my investments rise in value and where will I add if my investments drop in value?

While it may shock some, this discipline actually pays off significantly over the long term. Instead of panic-selling into a crash or FOMO-buying into a rally, by calmly reviewing my investments and determining whether I should add, trim, or do nothing at all, I’m prepared for pretty much any market outcome.

And, given the volatility we’ve already seen so far in August and the upcoming Federal Reserve Jackson Hole meeting next week, I have a feeling August is far from done with us, yet!

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

Bitcoin implodes in a bearish breakdown!

Bitcoin started to sell off on Tuesday with a key break happening Thursday when the crypto cracked through key support at $28,477.00. This signaled the beginning of something much larger, as the bearish whales took over and crashed Bitcoin through a key level at $26,965.14, not making new support until $25,234.76.

While the news reported that Elon Musk’s Space-X liquidated their holdings in Bitcoin, it’s hard to determine if that was the actual catalyst or if the unbelievably low volatility in the space was ready to pop. Additionally, the combination of deflation from China with an overtly hawkish Fed in the U.S. likely didn’t help Bitcoin’s case any. 

From here, the next tested level of support is $24,750.00, the low from June, followed by the previously-untested level at $23,931.01.

The Bullish Case

Bulls argue that Bitcoin’s resilience and the fact buyers come in with the break of each support are signs of bullishness in the space. In fact, one analyst tried to make the argument that the SEC delaying the spot Bitcoin ETF approvals is bullish for the space (I’m still not sure how that logic works… at all; anyone interested in buying Bitcoin through an ETF isn’t suddenly going to venture into the direct space, they’ll just wait).

The Bearish Case

With many massively-important key support levels broken, Bitcoin has established a new bearish downtrend, supporting the Bears’ argument that there is potentially significant downside ahead for the sector. With macroeconomic and geopolitical concerns aligning against all risk assets – and Bitcoin remaining a risk asset for the time being – the Bears have the upper-hand… in spades.

Bitcoin Trade Update

Current Allocation: 1.427% (+0.620% since last update)
Current Per-Coin Price: $28,514.10 (-5.29% since last update)
Current Profit/Loss Status: -8.05% (-5.83% since last update)

My Bitcoin buy orders started filling again after it tested support on Tuesday. My orders started filling at $29,111.10 with my lowest buy at $25,930.20, giving me an average buy of $26,678.52 (after trading fees).

The buys lowered my per-coin cost -5.29% from $30,106.17 down to $28,514.10 and raised my allocation +0.620% from 0.807% to 1.427%. 

Now that Bitcoin has experienced a significant break of support, my buy quantities have started to ramp up in kind and will continue to as long as Bitcoin’s new crash continues.

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:

0.310% @ $25,261
0.320% @ $24,378
0.380% @ $23,736
0.407% @ $23,032
0.434% @ $22,018
0.516% @ $21,431
0.787% @ $20,735
1.189% @ $19,907
1.282% @ $19,368
0.272% @ $18,975

Not Your Keys, Not Your Crypto…

In light of brokerage failures in 2022, I no longer keep any of my crypto on an exchange and I only keep enough USD on the exchanges I use 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.

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, Bitcoin crashed -54% to a low of $6430.00 in December 2019.
• In February 2020, Bitcoin rallied +64% to $10,522.51.
• In March , 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 2021, Bitcoin dropped -32% to a low of $28,732.00.
• In February, 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 , Bitcoin rallied +51% to a new all-time high of $64,896.75.
• In June , Bitcoin crashed -56% to a low of $28,800.00.
• In November, 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.
• In April 2023, Bitcoin rallied +101% to a high of $31,050.00.
• In June, Bitcoin dropped -20% to a low of $24,750.00
• In July, Bitcoin rallied +29% to a high of $31,862.21.
• In August, Bitcoin dropped -21% to a low of $25,234.76

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.