Summing Up The Week

After a somewhat dull Monday despite Moody’s credit agency downgrading its outlook on the U.S. economy on Friday night, the markets positively exploded higher on Tuesday following a cooler-than-expected Consumer Price Index (CPI) report.

The rally was so explosive that even market professionals like JP Morgan’s (JPM) CEO Jamie Dimon remarked that the Bulls had most definitely overreacted to what was a good – but not exceptional – single data point on inflation. The positive momentum continued until Thursday where markets took a bit of a breather.

While Bulls continue to claim stocks will rally through the year-end, Bears and even moderate pundits question if stocks have much further to go after the explosive rally seen over the past week – is it possible that the Santa Claus Rally (typically the last 4-5 trading days of one year and the first 1-2 of the next year rally higher) has come early and there may not be much upside left in stocks? Time will tell.

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

Market News

Moody’s cuts U.S. outlook to negative

Last Friday after the market closed, Moody’s credit rating agency cut its outlook on the United States to negative, citing deficits and political polarization as the cause, reported CNBC.

“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said. “Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”

In discussing the current political climate, the report went on to say, “Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.”

When markets opened on Monday, the downgrade had little to no effect on stocks.

Consumer spending fell in October per new tracking data

On Monday, CNBC unveiled a new retail indicator developed in partnership with the National Retail Federation (NRF) designed to track consumer spending through credit card transactions. CNBC/NRF’s new Retail Monitor showed that retail sales dropped 0.08% in October, potentially indicating the start of consumer weakness, reported CNBC.

The Retail Monitor uses 9 billion annual credit and debit card transactions collected anonymously by Affinity, amounting to more than $500 billion in sales from cards issued by more than 1,400 banks and other institutions. 

According to CNBC, the data differs from the Census Bureau’s retail sales report as it is the result of actual consumer purchases, while the Census relies on survey data. The government data is frequently revised as additional survey data becomes available. The CNBC/NRF Retail Monitor is not revised as it’s calculated from actual transactions during the month. It is, however, seasonally adjusted, using the same program employed by Census.

“Our audience, investors and executives alike, will now be armed with dynamic insights that go beyond headline numbers to show emerging trends and critical detail,” CNBC Senior Vice President of Business News Dan Colarusso said.

Inflation flat in October, core CPI lower than expected

On Tuesday, the Consumer Price Index (CPI), a gauge of inflation, showed that, while inflation did not decrease in October, the core CPI did come in lower than expected at 3.2% year-over-year versus 3.3% expected by economists, reported CNBC.

As a result, the yield on the 10-year Treasury decreased as investors started buying up the notes with the belief that interest rates have peaked and will not go higher. Naturally, the markets rallied on the news, with stocks gapping at the open across every sector across the board.

Wholesale prices fell 0.5% in October, biggest since April 2020

On Wednesday, the Producer Price Index (PPI) showed prices for producers dropped 0.5% in October versus expectations for a 0.1% increase, reported CNBC. Price declines from goods contributed the most to the PPI’s drop, as goods slid a fairly substantial 1.4% in October, due to an 15.3% decrease in gasoline prices.

It’s worth noting that the decrease in gasoline prices may not be a result of a drop in demand, rather an increase in the demand for diesel.

Since a single barrel of oil produces a variety of products that cannot be produced independently, when the demand increases for a single component, such as diesel, it can lead to a surplus of the rest of the components as all must be refined at the same time. Simply said, the demand spike in diesel created a supply glut in gasoline, potentially causing gasoline prices to drop not as a result from a decrease in demand.

Regardless of the reason, outright deflation in the PPI was not expected. However, given the explosive rally the markets saw on Tuesday, stocks didn’t react substantially to the news provided by the PPI report.

Next Week’s Gameplan

Seasonally speaking, we are in a time of the year where stocks often outperform, rallying through the holidays and into the year-end. However, with the immense rally we’ve seen just since the market’s bottom in October, some Bears are arguing that December 2023 could be a lot more similar to December 2018 which saw the S&P 500 sell off 20% from its recent high and was also home to the worst Christmas Eve since the Great Depression in the 1930s.

As always, this dichotomy in the markets is exactly why I don’t allow any personal narratives I might hold to affect the way I approach markets. As you’ll see later this weekend in my Investments in Play and Speculation in Play updates, I have been taking profits and adding to short positions (the small ones in my speculative portfolio) when the opportunities presented themselves.

The next month and a half should be exciting, so, as always, stay calm and keep investing on, friends!

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

Volatility Returns to Bitcoin!

The last week showed that the extreme volatility Bitcoin and the cryptocurrency space has become known for since its inception is in no ways dying down. After pulling back more than -8.50% to set a new weekly point of support at $34,758.64 on Tuesday, Bitcoin rallied +9.29% on Wednesday, stopping just shy of its $38,000.00 high, before whipsawing in the opposite direction on Thursday.

Bitcoin also seems to have broken its correlation to equities and risk assets. When the stock market exploded higher on Tuesday, Bitcoin sold off a contrary reaction to what the crypto would normally do in such an event.

While reviewing the chart, you can see that Bitcoin has been unable to break above the Next Support of Last Resort trendline, which will continue to act as resistance until Bitcoin can break above it, test it, and then proceed higher.

The Bullish Case

Bulls believe the lack of correlation to tech stocks and risk assets proves Bitcoin has transformed into a “safe haven” asset. Accordingly, many bulls believe that investors will use Bitcoin in a similar fashion that many use U.S. Treasurys and gold – an alternative to cash. These Bulls believe that such a transition will provide further fuel to Bitcoin’s recent rally, ensuring that the crypto will see $69,000 by the end of 2023.

The Bearish Case

Bears argue that Bitcoin’s recent rally is simply the result of rumors regarding the SEC potentially approving spot Bitcoin ETFs. These Bears maintain that, regardless of which way the SEC decides, the spot Bitcoin ETFs are a “buy the rumor, sell the news event,” and that speculative traders will dump their Bitcoin holdings once the news breaks, sending Bitcoin below $30,000 with some still claiming $10K as a low-end target.

Bitcoin Trade Update

Trade Reset: +8.75% gain, ,+187.89% annualized

Current Allocation: 2.533% (+0.366% since start of trade)
Current Per-Coin Price: $37,762.25 (-0.62% since start of trade)
Current Profit/Loss Status: -4.51% (*New Trade*)

With Bitcoin nearing $40,000 and my trade allocation under 3%, I decided once again to reset my trade. Within less than three weeks, I locked in an +8.75% gain which works out to +187.89% on an annualized rate.

Unlike stock trades where I would actually sell the position to close it out, with Bitcoin, I always want to have a trade on. Bitcoin’s tendency to be incredibly volatile on the way down – and on the way up – means I always want to have some exposure. 

Instead of closing the trade, I reset it.

What this means is I pull the profit off the exchange (leaving it as Bitcoin, I never take my profits in USD, only in crypto) and reset the cost basis where I would have sold, effectively keeping the same allocation exposure except now at a higher cost basis, in this case, my new cost basis is $37,999.96, where I “closed” the trade.

Beginning on Saturday, I began aggressively buying Bitcoin by raising my price targets. However, in order to mitigate risk, I have also substantially reduced the quantity I will be buying in case we see the severe pullback some of the Bears are predicting.

My buy orders started filling at $37,018.50 with a series of additional buys filling throughout the week giving me a $36,416.12 average buying price (after fees). The buys served to lower my per-coin cost -0.62% from $37,999.66 to $37,762.25 and increased my allocation +0.366% from 2.167% to 2.533%.

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% @ $35,570
0.027% @ $35,087
0.027% @ $34,845
0.027% @ $34,341
0.027% @ $34,107
0.027% @ $33,762
0.027% @ $33,403
0.027% @ $32,692
0.027% @ $32,009
0.027% @ $31,326

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 September, Bitcoin dropped -22% to a low of $24,900.00.
• In November, Bitcoin rallied +53% to a high of $37,999.00.

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.