Summing Up The Week

What a week!

From Boeing (BA) finally admitting they need to stop making a plane they can’t sell (at least for awhile) to Impeachment, Brexit, and the U.S. Housing market only to have the week capped with Boeing screwing up… again… it’s been crazy!

So, let’s take a look at the news that moved the markets, this week before Christmas!

Market News

Boeing (BA), U.S.’s Biggest Exporter, Halts 737 Max

Boeing (BA) announced it will suspend 737 Max airline production, reported CNBC on Monday.

CEO Dennis Muilenburg had previously said that suspending output of the company’s leading plane – which has been grounded for nearly a year – could be “more efficient” than lowering output.

The news caused Boeing’s stock price to collapse throughout the week with the primary concern being that a halt in production will either result in layoffs of skilled personnel who would be difficult – if not impossible – to replace once the plane has been recertified or would result in increased costs as Boeing would fund payroll for employees not working.

In addition, many smaller companies build supplies for Boeing, the United States biggest manufacturer and biggest exporter. A Boeing production halt could have ripple effects on the entire U.S. economy.

The story worsened on Tuesday when JP Morgan analysts estimate Boeing will burn $1 billion a month on 737 Max even with the halt, reported CNBC. Boeing will still need to pay its employees and continue to support its suppliers to prevent potentially significant harm to the entire American economy.

On Friday, Boeing’s Starliner spacecraft failed a key test by flying into the wrong orbit, reported CNBC. The Starliner is intended for human space travel, initially planned for use getting astronauts to and from the International Space Station (ISS).

While there were no passengers on Friday’s test flight, engineers pointed to a software issue with the spacecraft causing the mission failure explaining that the Starline “was in an orbital insertion burn… the spacecraft more fuel than anticipated to maintain precise control,” said NASA Administrator Jim Bridenstine.

Given that the cause of the two deadly 737-Max crashes was also a software issue – involving the automated-navigation system in the case of the 737s  – serious questions into the quality control, testing, reliability, and safety of Boeing’s software engineering are being raised by many both in and out of the aerospace industry.

Homebuilder Confidence Highest in 20 Years

The National Association of Home Builders (NAHB) reported that homebuilder confidence in newly-built, single-family homes jumped 5 points in December to 76, its highest reading since June 1999, reported CNBC on Monday.

Many analysts see home sales as a significant metric in judging the American economy since houses are the biggest purchases most Americans will make, and the American consumer is the biggest factor in the current economic expansion.

The combination of millenials beginning to buy their first homes and a glut in the production of entry-level homes has resulted in builders building more homes for first-time homebuyers.

However, costs are an issue for homebuilders. “Higher development costs are hurting [housing] affordability and dampening more robust construction growth,” said NAHB chief economist Robert Dietz.

Brexit: Deal or No Deal?

After last week’s British elections gave Prime Minister Boris Johnson a majority in parliament, a potential no-deal Brexit concerned investors, causing the pound to drop more than 1% in early trading on Tuesday, reported CNBC.

Reports say that Johnson intends to add a revision to the Withdrawal Agreement Bill ruling out any extension to the transition period beyond December 2020. With the U.K. due to leave the European Union by January 31, 2020, no additional extensions could potentially result in a no-deal Brexit, the worst-case scenario for both the British and EU’s economies.

2020 Housing Forecast Boosted “Significantly”

On Wednesday, Fannie Mae predicted growth in single-family housing starts will accelerate to 10% during 2020 with more than 1 million new homes built in 2021, reported CNBC.

Fannie Mae’s Economic and Strategic Research Group points to a strong labor market and robust consumer spending combined with low mortgage rates for the increase in housing demand. 

President Trump Impeached for High Crimes & Misdemeanors

President Trump made history once again as only the third president to ever be impeached as the House of Representatives voted to impeach the president for high crimes and misdemeanors during a session on Wednesday.

While the removal of a president has historically been a horrendous time for the stock market (the S&P 500 dropped -25% following Nixon’s resignation in the 1970s), the likelihood that Trump will be removed from office is virtually nil, according to Republican leaders in the Senate who point to the need for a supermajority vote (60%) where the conservative party holds a 53-47 majority.

Despite the unarguably sad news event (love or hate Trump, an impeachment is a divisive and terrible time for all Americans), the stock market was unaffected by the news throughout the week.

For more details on how impeachment affects stock markets, check out The Street’s feature on the topic.

Wait… Home Sales Decreased in November?!

Despite all the good news about the housing market and homebuilders earlier in the week, the National Association of Realtors’ released numbers saying sales of existing homes fell 1.7% in November, reported CNBC on Thursday.

While the headline sounds incongruous with the week’s earlier news stories, it actually makes perfect sense when we focus on the keyword: “existing.” The reason homebuilders are ramping up production is that first-time buyers can’t find enough entry-level homes on the market.

Further challenging the existing home market is a dwindling supply – down -5.7% from a year ago – and rising prices – up +5.4% from a year ago – resulting in a growth in housing values that’s outpacing wage growth.

Long story short, the next few years should be interesting (read: profitable) for homebuilders like DR Horton (DHI), Lennar Corp (LEN), and KB Homes (KBH) as they ramp up production to meet demand.

Next Week’s Gameplan

I want to take this moment to wish everyone a very Merry Christmas (if you celebrate that sort of thing, otherwise… happy Wednesday, I guess?)!

Make sure to take some time away from the markets. Fortunately, it’s a half-day on Christmas Eve followed by no trading on Wednesday, but, typically, the Christmas week is a slow one (don’t pay any attention to 2018).

Many analysts are predicting a “Santa Claus Rally,” a historic period of bullish upward movement beginning a day or two before Christmas and carrying out through the remainder of the Christmas week.

We’ve seen such an exuberant uptrend so far – is a Santa Claus Rally too much to hope for? Let’s wait and see if we hear a clatter on the roof!

Happy Holidays, everybody!

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

Well, the past week was certainly… weird.

Bitcoin’s price consolidation period broke this past week, and, as expected, the move was a big one. In this case, the move was downward, indicating that Bitcoin’s bottoming cycle is far from over.

Initially, the Support of Last Resort appeared to hold on Monday, but then Bitcoin broke through – and closed below – the trendline on Tuesday, leading to lower lows.

However, on Wednesday, Bitcoin made a new weekly low of $6430 and then rocketed skyward, breaking through last week’s high and setting a new $7448.24 weekly high, all in the space of about eight (8) hours!

On the weekly and monthly charts, the Support of Last Resort actually appears to have held as it looks as though Bitcoin will close above the support line, indicating that the line actually held. Granted, there are still two days left in this week and anything is possible when it comes to Bitcoin.

Why did Bitcoin Whiplash like that?

Humans instinctively want explanations for how the world works. Why is the sky blue? Why does sweet food taste sweet? Why does Bitcoin move the way it does?

While most questions can be answered scientifically, no one has figured out Bitcoin’s price movements. However, that doesn’t stop people from trying…

Fundamentalists will try to find news stories from the industry to explain price movements such as rumors of Ethereum (ETH) having yet another hard fork. Chartists will point to Technical Analysis, claiming the charts predicted and explain the collapse. A third group, the Doomsdayers, say that this is just another cycle in the “Tulip Bulb” bubble and that Bitcoin’s headed for zero.

However, in the years I’ve been speculating in the cryptocurrency asset class, I’ve learned only one thing I know for certain: no one knows anything. 

Where will Bitcoin go next?

As I’ve said before, the only predictable thing about Bitcoin is its unpredictability. Some analysts believe the sudden 8-hour bounce is just a result of short-covering as the Bears regain strength to continue the push down. Others believe that the $6430 mark is the new low and the next move is higher.

However, there are only two directions – up or down – so let’s look at the scenarios:

THE BULL CASE for Bitcoin – 2020 Edition

Since $13,868.44 is definitely the high for 2019 (there are only a handful of days left in the year and even Bitcoin doesn’t move that quick), the question will be – how low will Bitcoin go before it bottoms (or has it)?

The Bull case would be a higher-low than $3128.89, its low set in December 2018. Higher lows indicate stronger support and a general upward momentum for an asset class. If Bitcoin doesn’t break its 2018 low and bounces from a higher price, analysts believe the asset is becoming stronger and more bullish.

The very optimistic Bull would argue that Bitcoin’s low of $6430 is the new weekly and monthly low since it was set on a key trend line (the Support of Last Resort), and the next move will be to the upside – dramatically to the upside.

If Bitcoin is able to break through its high of $13,868.44, then the next Bullish price target will be its all-time high of $19,891.99, a 43% gain, followed by much higher price targets with some insane pie-in-the-sky analysts predicting eventual highs anywhere from $30,000 and $50,000 to $100,000 and even $1,000,000!

The less-optimistic but still Bullish scenario is that $6430 doesn’t hold, but key levels of support, such as the 50-month Moving Average (MA), will provide support and create the new low, in this case at $4650-$4750, from where Bitcoin will bounce and head for 2019’s high, hopefully breaking it and making an attempt at its all-time high.

THE BEAR CASE for Bitcoin – 2020 Edition

Where the Bulls would want $6430 to be the new low for Bitcoin, the Bears would argue that the low isn’t set. In fact, the true Bear case is that Bitcoin will crash through $3128.89, delving to even deeper depths.

If Bitcoin doesn’t find support before $3128.89 and breaks through, Bears argue the next likely support would be $2400-2600, $1700-$1800, or even $900-$1000!

Naturally, just as there are crazy Bullish predictions, the Bears have those, too, with some suggesting the Tulip Bulb mania mentioned above will eventually lead to Bitcoin heading to zero (naturally, these Bears forget that tulip bulbs never went to zero, they’re $12.90 to $59.98 for sets of 8-100 bulbs on Home Depot’s website).

Bitcoin Gameplan

When dealing with a volatile and unpredictable asset class, the only approach for a gameplan is to plan for any potential outcome, buying more or taking profits wherever and whenever the speculator feels its best to do so.

Instead of being surprised by Bitcoin’s volatility, I try to anticipate it… in both directions.

Over the past week, with Bitcoin dropping to lower levels, I added a total of 0.6% to my allocation at varying points of support with my lowest order filled at $6436.35, almost nailing the weekly low at $6430.00.

The orders lowered my per-coin cost by -1.88% from $8199.77 to $8,045.39 and increased my allocation to 6.94% of my targeted amount.

Now that Bitcoin’s bounced, I have updated my gameplan with both buying levels and selling levels:

Bitcoin Buying Targets

Here are my target buying quantities and prices from this point:

0.28% @ $6486  <– Higher than my last order in case it tests the new “bottom”
1.25% @ $6106
1.59% @ $5826
7.50% @ $4758
6.52% @ $4328
9.83% @ $3517
12.41% @ $2456
17.91% @ $1817
27.63% @ $1062

Bitcoin Selling Targets

Here are my target selling quantities and prices from this point:

5.76% @ $9292 (+15%)    <– Key downward trend line #1
7.26% @ $11,706 (+45%)   <– Key downward trend line #2
8.26% @ $13,315 (+65%)    <– Approaching 2019 High
10.03% @ $16,131 (+100%)  <– I always take profits when I’ve doubled my money
12.27% @ $19,751 (+145%)  <– Approaching All-Time High (ATH)
56.42% @ $29,808 (+270%)  <– Ridiculous target at upper trend-line

While neither buying nor selling targets are set in stone, it’s far more likely that I’ll get stopped out before hitting my higher selling targets; it never hurts to dream, right? 😉

Why the differing quantities at each level instead of a flat percentage?
Rather than buying an equal percentage, I change my buying quantity at each stage as a reflection of how likely Bitcoin could bottom and rebound from that stage. The greater the pullback, the more likely a rebound becomes. Therefore, higher price points have a lesser likelihood of rebounding than lower price points and deserve a smaller quantity buy in order to practice conservative risk management, a requirement for the sector.

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 (sometimes a drop of near -90% or a gain of up to +1000% or more), Bitcoin has demonstrated that, more than any speculative asset, its price is capable of doing anything.

Here are just a few recent price movements over the past couple of years:

• Bitcoin rose 2,707% from its January 2017 low of $734.64 to make an all-time high of $19,891.99 in December of the same year.
• Then, Bitcoin crashed nearly -85% from its high to a December 2018 low of $3128.89.
• In the first half of 2019, Bitcoin rebounded 343% from $3128.89 to $13,868.44.
• Since June 2019, Bitcoin has dropped -53.64% to a low of $6430.00 in December.

Where will Bitcoin go from here? Truly, anything is possible.

What if Bitcoin’s headed to zero?
The only reason I speculate in the cryptocurrency space is I truly believe Bitcoin isn’t headed to zero.

I am prepared for that possibility, however, by knowing I could potentially lose all of the capital I’ve allocated to this speculative investment. Professional advisers recommend speculating with no more than 5% of an investor’s overall assets. Personally, I’ve allocated only 1.8% of my assets to speculating in crypto.

I feel that anyone who doesn’t believe in the long-term viability of cryptocurrency would be better served not speculating in the space.

On a good day, this asset class isn’t suitable for those with weak stomachs. On volatile days, the sector can induce nausea in the most iron-willed speculator.

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.