Summing Up The Week

As many analysts expected, it was a quiet week in stocks for the first half, however, on Thursday, investors got jittery going into the Federal Reserve meeting in Jackson Hole and caused the stock market to sell off a bit with the S&P 500 down nearly -1% on the day and the Nasdaq selling off nearly -2%!

On Friday, everything really lit on fire when Federal Reserve Jerome Powell gave his speech from the confab in Wyoming, where the Chair indicated, finally, that interest rate cuts are ahead. 

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

Market News

FOMC minutes point to September rate cut

On Wednesday, the Federal Reserve officials released the minutes to their July meeting pointing to a September interest rate cut as likely, reported CNBC. Despite what should have already been priced into the markets, a brief pullback turned into a small rally as investors rejoiced on more evidence that rate cuts could be just around the corner.

“The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” according to the summary.

The minutes went on to point out, “several [meeting participants] observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision.”

Intriguingly, Bitcoin, often referred to as “digital gold,” saw a significant rally after the release of the minutes whereas physical gold remained relatively flat on the day, not reacting to the minutes in either direction. I would have thought the two to correlate on interest rate news and not diverge; maybe one knows something the other does not?

Fed Chair Jerome Powell indicates interest rate cuts ahead

On Friday, Federal Reserve Chair Jerome Powell said interest rate cuts are coming soon to an economy near you in a speech given from Jackson Hole, Wyoming, reported CNBC. “The time has come for policy to adjust,” he said early in his keynote address. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Powell went on to point out the progress made toward tamping down inflation, and reiterated the Fed’s dual mandate of also keeping a strong job market. “Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” he said. “Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”

Stocks were already rallying into his speech and really took off after he started speaking as investors look at rate cuts as positive, and an indication that the Federal Reserve may actually pull off a “soft landing” for the economy.”

Next Week’s Gameplan

Next week promises to be the main event for August. Not only do we get key economic reports like the result of the Consumer Confidence Survey on Tuesday and the Personal Consumption Expenditures (PCE) index on Friday (the Federal Reserve’s preferred gauge of inflation), the most important stock in the history of the markets, Nvidia (NVDA), reports earnings after the bell on Wednesday!

While I say that with a little hyperbolic tongue-in-cheek, there’s no doubting that Nvidia’s report will move the markets, potentially more than anything else that happens next week. Of course, if PCE surprises, particularly with a return of inflation, that will certainly send the markets reeling, but since the month’s CPI and PPI released last week came in as-expected or better, there’s no reason to expect the PCE to be different.

Nvidia, however, could be a wild card. The company can’t just meet expectations, it must wildly blow them away as it has for every quarter since 2022. Even then, it’s possible investors might not be impressed enough. If the AI hype-train that’s carried so many stocks through this recent bull market gets derailed even a little, the outcome could be significant. 

At any rate, next week promises to be exciting, so grab your popcorn and I’ll meet you back here to recap the events next Friday!

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Crytpo Corner

Bitcoin Price Action

Has Bitcoin Bottomed? The potential may shock you.

I always enjoy performing Bitcoin studies when my insomnia gets the better of me and I find myself up at 3am. This week, I looked back at every time Bitcoin made a new all-time high of 10% or less from the previous ATH. 🤔

I looked at how big the drawdown was from the new ATH and how long it took Bitcoin to bottom from the shallow new ATH.

I found 7 occurrences:

March 7-24, 2017
ATH: +7.61% from prior
Drawdown: -33.49%
Bottomed 52 days later

June 12 – July 16, 2017
ATH: +7.55% from prior
Drawdown: -39.53%
Bottomed 34 days later

March 13-25, 2021
ATH: +5.80% from prior
Drawdown: -18.45%
Bottomed 12 days later

April 13 – June 22, 2021
ATH: +5.06% from prior
Drawdown: -55.69%
Bottomed 69 days later

October 20-28, 2021
ATH: +3.24% from prior
Drawdown: -14.35%
Bottomed 8 days later

November 10, 2021 – November 21, 2022
ATH: +2.98% from prior
Drawdown: -77.57%
Bottomed 376 days later

March 14, 2024 – PRESENT
ATH: +6.90% from prior
Drawdown: -33.27%
144 days to bottom?

While seven datapoints hardly make a statistically confident study, I’ve seen many “professional” analysts both in #crypto and #stocks make claims with fewer datapoints, so what do we see here? 🧐

CONCLUSION:

When making a comparatively shallow all-time high from the prior, the size of the drawdown isn’t necessarily as important as HOW LONG IT TAKES TO BOTTOM.

March and July 2017 saw a comparable drawdowns (33.49% and 39.53%, respectively) to our current drawdown of -33.27%.

However, both bottomed far sooner than our current drawdown, taking only 52 days and 34 days, respectively to the current drawdown’s 144 days.

While there have been other drawdowns more extreme like April-June 2021’s -55.69%, Bitcoin bottomed in half the time at 69 days compared to the current drawdown’s 144 days from ATH to current cycle low.

What does this all mean?

Given that there’s only one drawdown in the six previous cycles that took longer than 69 days – November 10, 2021 to November 21, 2022 – which concluded with a -77.57% drawdown before bottoming, the objective, unbiased Bitcoin analyst must acknowledge:

We may be VERY far from a bottom in the current cycle. 🫣

Current downside targets using the above examples:

-39.53% from current ATH (June-July 2017): $44,601.09

-55.69% from current ATH (April-June 2021): $32,681.90

-77.57% from current ATH November 2021-November 2022): $16,543.78

As a professionally-trained statistician, I would be a hypocrite to imply the above study has any measure of statistical confidence – there are simply too few datapoints. Therefore, I can’t provide any reliable form of measure of the likelihood that Bitcoin could pull back -77.57% from its current All-Time High.

However, in the investing industry, due to the timeframes we work with and the relatively small amount of data we have (even the entire dataset we have for the stock market is only accurate back for about 200 years), analysts have no choice but to work with small bodies of data.

My lesson to investors is my own approach:

I am always hopeful that Bitcoin has bottomed and will head for much higher all-time highs, but I always make buying plans for EVERY scenario, no matter how remote or insignificant the chance that Bitcoin sells off that low. 👍

This week, Bitcoin remained trading within a range. On Wednesday, it briefly broke through the weekly high on some charts, but it did not do so on Coinbase where the prior high at $61,868.69 held, a bearish indication as the bulls seemed unable to get Bitcoin to rally with much gusto.

On the bright side, Bitcoin did set a higher weekly-low on Monday at $57,820.00. In order to see Bitcoin regain bullish momentum, it really needs to break out above $62,755.24, the high of the bounce after it sold off to $49,050.01 on August 5. 

The Bullish Case

After Bitcoin rallied above $60K, the Bulls started to point to everything from consolidation always resolving in a bullish breakout (it doesn’t) to Bitcoin always outperforming in Presidential Election years (it’s only had three to compare) and everything in-between to claim Bitcoin has bottomed and is headed higher. Some Bulls even believe we’ll see a new all-time high before the end of the year.

The Bearish Case

Bears point to Bitcoin’s inability to correlate to risk-on assets or even gold as extreme weakness. Bears believe that Bitcoin will sell off once more with some predicting new lows much further below the current $49K cycle low.

Bitcoin Trade Update

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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 my Gemini referral link to open an account.

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 January 2024, Bitcoin rallied +97% to a high of $49,102.29.
• Later in January, Bitcoin dropped -22% to a low of $38,501.00.
• In March, Bitcoin rallied +92% to a new all-time high of $73,835.57.
• In August, Bitcoin dropped -33% to a low of $49,050.01.

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.