Summing Up The Week

There are slow news weeks and then there are not-so-slow news weeks.

And then there was this week – insane.

Earnings, economic reports, and a “surprise” announcement from Trump that there are new China tariffs on the horizon caused volatile price action that is beginning to feel a lot like we’re back in Q4 of last year.

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

Market News

Trump Tweets New Tariffs, Destroys Markets

As if the market’s reaction to the Fed’s communication fiasco around interest rates wasn’t enough, Trump decided Thursday would be a good time to tweet that he intends to enact another round of tariffs – $300 billion worth – on Chinese goods not already targeted.

The markets collapsed on the news with the Dow Jones Industrial Average (DJI) reversing from a +300 point gain to a -300 point loss (a 600-point range) throughout the day and the S&P 500 (SPX) flipped from a +1.15% gain to a -1.15% loss.

Say what you will about him, Trump may get mixed reviews as a president, but he is certainly our “Buying-Opportunity-Provider-in-Chief” for the markets!

Fed Cuts Interest Rate By A Quarter Point

On Wednesday, Federal Reserve Bank Chief and the Committee voted to drop the overnight lending rate – what is commonly referred to as “the interest rate” – by 0.25% to 2.0%-2.25% from 2.25%-2.50%, reported CNBC.

Although Powell had all but telegraphed this was his intention more than a month ago, the last few weeks saw predictions from analysts ranging from a 0.5% cut to no cut at all, with much consternation over the upcoming Fed meeting.

Slow news weeks, I guess? To most people, this outcome was simple:

Had the Fed not cut the interest rate as expected, the stock market would have crashed.

Had the Fed cut the rate more than 0.25%, then the stock market would have crashed as investors would have thought the Federal Reserve saw more serious issues affecting the economy than the general consensus.

The 0.25% interest rate cut was not only prudent, but it was the only realistic choice. 

The Fed cited “implications of global developments for the economic outlook as well as muted inflation pressures.” Historically, this is the Fed’s first rate cut since the end of Quantitative Easing (QE) in December 2008. However, it’s also worth noting that many analysts and economists point out that the interest rate increase in December 2018 likely caused the dramatic 20% pullback and damaged the economy.

In other words, Wednesday’s cut fixed a past mistake in order to potentially put the economy on the track it was on prior to the erroneous rate increase in December.

In addition to the cut, the Fed left the potential for future interest rate cuts, saying that it will “act as appropriate to sustain the expansion.” However, Powell was careful to point out that there was no guarantee of additional cuts, pointing to the importance of observing economic factors, stating that the cut was an “adjustment” and not an indication of the start of an ongoing trend.

Like greedy children wanting another piece of candy, the Dow Jones Industrial Average (DJI) and S&P 500 both threw temper tantrums, selling off more than -1% in Wednesday trading following the news.

U.S. Employment at Record High

On Friday, the Labor Department’s Payroll Report showed an increase of 164,000 during July, an all-time record and only 1,000 below the Dow Jones forecast of 165,000, reported CNBC.

The total labor force came in at a record high 163.4 million, indicating that the job market in the U.S. is as strong as it has ever been. 

However, the report wasn’t strong enough to fight the fears presented by Trump’s tariff tweets and the uncertainty presented by Federal Reserve Chief Jerome Powell’s miscommunication following the rate cut on Wednesday.

U.S. Consumer Confidence Highest Since October

U.S. consumer confidence saw more strength than what analysts expected in July on Tuesday, reported TheStreet.com. The index jumped to 135.7, the highest since October and up significantly from 121.5 in June. Surveyed economists and analysts forecasted a reading of 125.

The Consumer Confidence Index is basically an indicator of how much money consumers are willing to spend, using a combination of car loans, mortgages, wage increases, and other factors to generate a single figure.

Given a positive report indicates a strong economy coupled with the fact that consumers have been driving recent stock market gains, analysts expected the stock market indexes to climb, but since everyone was eyeing Wednesday’s Fed Meeting and potential interest rate cut, the indexes closed modestly down.

Capital One (COF) Stock Slammed After Data Breach

CNBC reported Capital One (COF) confirmed a data hack on Monday causing a drop of more than -5% in its stock price. About 100,000,000 customers’ personal information including 140,000 credit card customers were compromised along with 80,000 bank account numbers, social security numbers and other personal information.

While initially, COF claimed the hack included no social security numbers, reporting by CNBC on Tuesday showed that pretty much everything is out there now. Great.

Personally, I use Costco’s Identity Protection to check up on all of my personal data to make sure no one is stealing, well, everything. Currently, Costco’s partnered with Complete ID, the service ironically provided by Experian who themselves experienced the data hack to end all data hacks a few years ago.

I also recommend checking your most commonly used email addresses to see if they were involved in a data hack at Have I Been Pwned.

While the website’s name may sound a bit suspicious, the site is maintained by a computer engineer who collects all the data from hacks and gives users the ability to cross-reference their email addresses… for free. Naturally, he doesn’t share what data was in the hack, instead his site shows you the hack(s) your email address was in, if any.

Next Week’s Gameplan

Now that it’s beginning to feel a lot like the end of 2018 again, the market’s switching from Selling Season to Buying Season.

With the Fed interest rate cut behind us, many bearish analysts are claiming that the market will pull back significantly, even as much (or more) than it did in the end of 2018 where there was a pullback of more than -20%.

Since it’s impossible to know exactly how much of a pullback (if any) that the market may see, I use the Buying in Stages technique to create a Trading Plan with levels for each of my positions in order to add more for a variety of scenarios – even in the event of a cataclysmic pullback or flash crash.

The coming weeks should be “exciting” as we head into the fourth quarter – a historically volatile time for the markets each year.

This Week in Play

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

Crytpo Corner

Bitcoin Price Action

While many cryptocurrency speculators try to day-trade the space – e.g. make trades and profits (hopefully) on a daily basis – I prefer to remain patient and use longer time horizons with my trades.

The crypto sector’s erratic behavior and dramatic swings in both directions make it easy to get your face ripped off when the trade moves the opposite direction of your preference if your time frame is too short. With so many algorithms and automated traders in the space combined with no regulation, price action moves suddenly and can trigger stop orders (both buys and sells) strategically.

Accordingly, I find reviewing Bitcoin’s price action on a weekly basis to be incredibly valuable even though I do watch the prices on a daily basis (riiiiggghhtt… more likely obsessively checking every few minutes).

Taking a step back to look at the longer time horizons can be truly valuable in seeing the real trends going on in the sector.

Take the past week, for example…

As we went into the last weekend, Bitcoin was fighting to hold the Support of Last Resort. It lost the fight and fell through support by Sunday, as I said I thought it might in last week’s Week in Review.

However, unlike many analysts who claimed it would fall as low as $7000, the previous week’s low of $9071.00 gave support and Bitcoin bounced just above it to make a new weekly low at $9108.88.

Since that point, Bitcoin continues to grind higher, making a weekly high of $10,670.00 just this morning (Friday, August 2).

Many “professionals” still think Bitcoin will pull back to at least $8,000.00 before making a run and its 2019 high of $13,868.44, but there’s only one certainty in this space:

There’s no certainty at all – anything is possible.

Bitcoin Gameplan

Currently, I am active in a Bitcoin trade which has a decent profit. I plan to start taking some off the table if Bitcoin closes in on $11,000 with sell orders at key resistance areas higher from here: $10,939; $11,486; $12,032; and $12,578.

The remainder of my position will sell at $14,763 if we see Bitcoin break its previous high, however, I think that outcome is unlikely. I don’t expect to see Bitcoin challenge its $13,868.44 yearly high on this particular bull run and bet that my current trade will close due to a stop loss being triggered when Bitcoin pulls back to build up strength through consolidation.

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.