Summing Up The Week

Even with mixed earnings reports – some indicating a weak economy and others indicating a resurgence of strength – the market moved mostly sideways this week.

While there was some Trade War news, company earnings have driven the market moves as we await the Fed meeting later this month. 

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

Market News

China Posts “Weakest” Quarterly Growth in 27 Years

The week kicked off with China’s economic statistics bureau reporting the economy grew “only” 6.2% in the second quarter, its lowest in growth rate in 27 years, reported CNBC. While pundits claim this low number is proof that the tariffs are working to damage China’s economy, it’s worth remembering that an ideal GDP growth rate according to economists is between 2 and 3% per quarter.

If the United States could experience a “slow” growth rate of like China’s 6.2%, the stock market would positively explode to the upside.

Amazon’s ‘Prime Day’ goes Primal with 175 Million Items Sold

Amazon’s (AMZN) annual shopping “holiday,” Prime Day, saw sales of more than 175 million items globally, on Monday and Tuesday this week. U.S. Prime members bought more than 100,000 laptops, 200,000 TVs and more than 1 million toys, according to CNBC.

While the sales constituted more than last year’s Prime Day and Black Friday combined, analysts point out that how Amazon fares delivering those items in its new one-day shipping window may be the result to watch. 

Netflix Whiffs its Earnings

Netflix (NFLX) collapsed more than -10% following a terrible earnings report on Thursday, dropping from $362.44 to the low $320s. Not only did the company miss on new U.S. subscribers (it actually lost U.S. subscribers rather than add 300,000 as expected), it completely missed on new international additions, the only real strength pundits could point to as its potential for growth.

Many analysts are sticking by Netflix, claiming that the new season of Stranger Things will bring new subscribers, however this could just be the beginning of the market adjusting Big Red’s sky-high valuation to bring it more in line with other competitors in the space.

For long-term investors, Disney (DIS) brings a lot more to the table with an exceptionally long track record of success, a reasonable valuation, diversified holdings (including theme parks, movies, ESPN, television networks), a gigantic back catalog of award-winning content, and a 1.22% dividend currently paying $1.76 a share.

Analysts defend Netflix, pointing out that Disney’s competing Disney Plus streaming service won’t come online until November and will likely to take some time to grow, however, these analysts seem to forget that Disney is already making a profit, unlike Netflix.

Disney has the time to wait without worrying about the cash drain Netflix has to contend with. Netflix currently carries in excess of $10 billion in debt on its balance sheet with no positive cash flow and no path to profitability as all incoming funds pay for the development of its original programming. NFLX is a no-touch.

For more, check out Get Irked’s Netflix versus Disney feature story.

Next Week’s Gameplan

For the next few weeks, market action will likely be dictated by the hundreds (literally, hundreds) of businesses that will be reporting earnings as well as the upcoming Fed meeting where Fed Chief Jerome Powell will end the guessing game as to whether or not he will cut rates.

With the market reaching higher highs, I’m not currently looking at adding to any of my positions, rather I’m taking profits when my positions reach overbought levels. I do have a few positions I’m keeping my eye on if they report bad earnings, but even then I will follow the Three-Day Rule before making a move.

This Week in Play

Stay tuned for this week’s episodes of our Investments in Play and Trades in Play coming online later this weekend! 

Crytpo Corner

Bitcoin Price Action

Over the past week, Bitcoin certainly proved that a zebra can’t change its stripes, dropping a total of -10.32% with a low of weekly $9,071.00, down nearly -25% from its $11,950 weekly high. Take a look at the Daily chart above to see exactly how exciting Bitcoin’s price movements were on a day-to-day basis.

One of the most intimidating elements to a “typical” move in cryptocurrency is the sheer speed with which this asset class can move in one direction or another. During its week-long decline, Bitcoin saw drops in excess of 5% within one 15-minute time-span.

The most dangerous four words any trader or investor can tell themselves are:

“This time is different.”

As Mark Twain famously said, “History may not repeat itself, but it certainly rhymes.” No other asset class moves like this, and Bitcoin has proven it has no plans to change its patterns to traditional price movement (as I thought it might have a few weeks ago).

Whenever the crypto sector moves dramatically in either way, analysts and pundits try to make links between news events and Bitcoin’s moves. This time, many claim Congressional investigations into Facebook’s new Libra “cryptocurrency” and talks of cryptocurrency in general are upsetting the space. I don’t think so.

I’ve learned that there is no logic (at least, none that anyone can see) to Bitcoin’s moves. Rather than trying to explain why, I simply go into crypto knowing that this is the direction Bitcoin’s moving – the why doesn’t matter. I make my trading plan accordingly – taking potential big moves in both directions into account.

Bitcoin Gameplan

When I first started speculating in Bitcoin, I was excited by its quick moves and 24-hour action. I thought the crypto sector provided opportunities to make quick money by day-trading Bitcoin. While this might be true for some people, day-trading absolutely isn’t for me as I got hit with massive losses throughout my first year in the space.

Rather than using day-trading, I find that using my Buying in Stages and Selling in Stages techniques in crypto yields better results for me – playing crypto as if it were an investment rather than a trade (only with typically much shorter time horizons).

By buying small amounts at substantially decreasing levels, I keep my losses to a minimum while capitalizing on Bitcoin’s huge drops. In reverse, by letting my profits run, only selling small amounts at varying levels of big gains, I increase the profits in my trades. Risk management is the priority to all trading in the space (just as it is in equities).

While the result is more overall profits with no losses, the time-frame for a single trade varies wildly – sometimes I’m in and out of a position in a matter of hours, sometimes a matter of months. I also know that I’ll never open a position at its absolute low or close a position at its absolute high. I’m okay with that – big profit is big profit even if it isn’t the absolute biggest possible profit.

At this point, I don’t feel that Bitcoin’s new Bull Market is over. Knowing that Bitcoin will always move as it has means that nausea-inducing pullbacks of -70%-80% are normal in this space, even if they make my head spin and my stomach flip. On the bright side, multiple 20% up-days help alleviate some of that indigestion.