Summing Up The Week

Despite Iranian attacks and negative news from Boeing, the markets continue to rocket higher making new records, but also reaching more and more overbought levels.

Even while analysts express concern and offer potential epic sell-off figures, investors continue to buy into the market, however, it would appear that a handful of key names – Alphabet (GOOG), Apple (AAPL), Facebook (FA), Microsoft (MSFT) and others – are the actual culprit versus the market as a whole.

Let’s look at the news that moved (or didn’t) the markets this week…

Market News

U.S. Tensions with Middle East Heightened

Following the killing of Iranian military commander Qassem Soleimani last week, tension between the U.S. and Iran heightened starting over the weekend after President Trump threatened to strike 52 “very high level and important” Iranian targets on Saturday, reported CNBC.

On Sunday, CNBC reported Iran condemned Donald Trump as a “terrorist in a suit” as a response to Trump’s threat of striking Iran should they retaliate. Later that day, Iran’s regime said it would further scale back compliance with an international nuclear pact, putting a more significant focus on uranium enrichment by not respecting any limits set in the 2015 deal (Source: CNBC).

The rhetoric continued all day on Sunday when Iraq got into the fray to announce plans to expel all foreign troops from their country. This prompted Trump to threaten to slap sanctions on Iraq ‘like they’ve never seen before,’ reported CNBC Sunday evening.

Historically, the potential for international conflict creates volatile market conditions, particularly when the conflict is in the Middle East where oil interests could be at stake. However, with U.S. oil production increasing in the past 10-15 years to the point where the U.S. is now an exporter rather than an importer, the lack of dependence on international oil prices creates an unknown situation.

On the one hand, U.S. production can increase to meet demand, however, on the other hand, increases in oil prices (and thereby gasoline prices) puts pressure on the consumer, the driving force in the market’s upward momentum.

Iran attacks Iraqi airbase housing U.S. troops

On Tuesday, at least two airbases housing American troops in western Iraq came under attack by rockets fired from Iran, reported CNBC.

Iran’s Supreme Leader Ayatollah Ali Kahmeni said the attacks were retaliation for the airstrike killing Iranian military leader Gen. Qasem Soleimani last week. The attacks came within hours of comments made by Secretary of State Mike Pompeo who referred to the Soleimani killing as “the right decision. We got it right.” 

Wednesday morning before the market opened, futures turned from negative to positive with no reports of casualties and no targeting of oil production infrastructure, reported CNBC. 

Boeing 737 Crashes in Iran, killing all 176 aboard

Ukraine Airlines Flight 752, a Boeing 737-800, crashed in Iran, killing all 167 passengers and nine crew members, reported CNBC on Tuesday.

The airline reported that the accident did not involve a missile strike or other form of attack, rather, it was a failure of the plane itself. A spokesperson for the airline said during a press conference that the plane was just serviced January 6 and the crew were very experienced.

The captain had 11,600 hours of experience on Boeing 737 jets with 5,500 as captain, according to the airline. “Given the crew’s experience, error probability is minimal,” said Ukraine International Airlines Vice President of Operations, Ihor Sosnovsky in a statement. “We do not even consider such a chance.”

The Iranian government announced on Wednesday that it would not share the plane’s boxes with Boeing or the U.S., preventing Boeing from analyzing precisely what caused the flight to crash minutes after takeoff, reported CNBC. Under international law, the country where the crash occurred controls the investigation, despite the fact that Boeing, the Federal Aviation Administration (FAA), and the National Transportation Safety Board (NTSB) would typically participate since the plane was manufactured in the U.S.

The 737-800 model is not Boeing’s 737-Max, the airplane model which has been grounded since Q1-2019 when two fatal crashes within a five-month span caused regulators to ground the jet with an investigation finding the model’s navigation computer software sorely lacking.

Boeing (BA) has been struggling since the Max’s grounding to rectify the software issues and has been working with the U.S. Federal Aviation Administration (FAA) to recertify the Max for flight. This week, Boeing halted production of additional planes and reassigned employees to other divisions.

More than 400 brand-new 737-Max airplanes are parked throughout the country awaiting FAA certification with airlines unable to use any models already in their fleet. Over the past month, Boeing has announced a series of settlements compensating airlines for the model’s lack of use in 2019, the most recent of which being to American Airlines (AAL). Although not officially disclosed, analysts estimate the package amounted to at least $600 million.

Private Payroll Growth Surged in December

ADP and Moody’s Analytics reported private payroll growth surging in December with companies adding 202,000 jobs versus the 150,000 estimate from analysts on the street, reported CNBC on Wednesday.

The report points to construction and service-related industries as the main sources for the increase in payroll. For market analysts, the continued strength in the labor market indicates a healthy U.S. economy.

Jobless Claims Fall while Unemployment Rises

Thursday’s claims report showed state unemployment benefit applications dropped to 214,000 last week, however, the number of unemployed Americans has risen to a 1-1/2 year high, reported CNBC.

Critics of the jobless claims number as an indicator of economic strength often point to this dichotomy – since unemployment benefits only last a set amount of time, those unemployed for longer than that time aren’t counted in the jobless claims number. Therefore, a more accurate approach to calculating the true number of unemployed Americans would be preferable.

Pundits now feel that the labor market could be losing momentum. On Thursday, analysts said the nonfarm payroll report scheduled for release on Friday would be instrumental in giving insight to the true strength of the U.S. economy.

Boeing Emails Show Manipulation of FAA Regulators

Boeing (BA) released more than 100 pages of internal messages from employees bragging about bullying FAA regulators to approve the 737 Max without requiring training with others complaining about lax safety standards, reported CNBC on Friday.

In a message from April 2017 one employee told another: “This airplane is designed by clowns who in turn are supervised by monkeys.” 

The FAA said the documents don’t present any safety risks that it didn’t already know from its own review of the planes. “While the tone and content of some of the language contained in the documents is disappointing, the FAA remains focused on following a thorough process for returning the Boeing 737 Max to passenger service,” the agency said.

Jobs Report a Mixed Bag

The Labor Department’s jobs report showed the manufacturing sector lost 12,000 jobs in December and jobs increased by only 46,000 in 2019 vs. the 264,000 in 2018, reported CNBC on Friday.

In an odd twist of fate, it’s not that there aren’t open positions – more than 477,000, in fact – but the lack of qualified applicants. “Until we have a better-trained, more-skilled workforce, which is not really out there, you’re going to have a lot of these positions open. It’s a challenge,” said Steve Rosen, CEO of Resilience Capital Partners.

Next Week’s Gameplan

Patience is key right now as I have no plans to take profits but my price targets to add are at what seems like significantly lower levels.

Until I see the markets stabilize and consolidate before moving any higher, I’m leaving what I have in the markets but definitely not adding more.

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

Bitcoin’s six-week price consolidation finally broke on Monday this week.

As I’ve been writing for the past few few weeks, the expected move was significant. In this case, the break was bullish, with Bulls rushing in to push up the crypto’s price, skyrocketing +23.56% from last week’s low to a new weekly high of $8,469.39 set on Wednesday before pulling back to slightly under $7700 to settle in the low $8000s to end our week.

Given that this high is significantly lower than Bitcoin’s last bull run in October (which carried a high of $10,540.49), Bitcoin may still remain in a Bearish trend unless it can push higher.

Bitcoin has been trading within a range since a significant bear move pushed the price down from November 19-25 with a monthly low of $6430 set on December 18 and a previous weekly high of $7688.99 set on December 23. This week’s move expands the range significantly.

Analysts pointed to increased tensions between the U.S. and the Middle East as the cause for Bitcoin’s bullish action, suggesting that many investors are using cryptocurrency as a store of wealth much in the same way investors use gold as a defensive, protective investment during times of strife.

However, in my opinion, Bitcoin’s current extreme price volatility makes it a poor choice as a store of wealth, although this thesis may become more believable if Bitcoin sees stronger price stabilization in the future.

For the moment, I still hold to the thesis that Bitcoin and cryptocurrencies do not correlate to any other asset class or news event, and any attempts to predict price action based on suggested correlations should be taken with extreme care as any correlation between Bitcoin and anything else has been historically broken as quickly as it has been found. 

Bitcoin Gameplan

After Bitcoin rocketed higher on Wednesday, I set a stop-loss limit order to peel a tiny amount of my allocation off with a profit should Bitcoin pull back toward my per-coin cost, which, of course, it did (crypto isn’t the most volatile asset class for nothing). I sold roughly 4% of my holdings at $8211.00, lowering my per-coin cost a tiny amount from $8045.39 to $8038.52.

Although some might find this approach silly since it was such a small amount for such a small effect, however I find this force-of-habit helps me avoid FOMO from kicking myself for not freeing up some  Bitcoin when it was above my per-coin cost.

I replaced what I sold on Wednesday when Bitcoin seemed to stabilize, buying back at $7806.55 to capture 4.93% in profits and lowering my per-coin again from $8038.52 to $8028.81.

Bitcoin Buying Targets

Here are my next ten (10) target buying quantities and prices from this point:

0.38% @ $7525
0.36% @ $7108
0.34% @ $6783
0.32% @ $6332
0.53% @ $6195
2.02% @ $5889
6.44% @ $5116
3.09% @ $4907
11.15% @ $4302
16.05% @ $3754

Bitcoin Selling Targets

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

5.52% @ $9,675 (+20.0%)    <– Key downward trendline
6.60% @ $11,601 (+44.0%)    <– Additional resistance trendline
9.60% @ $16,860 (+109.5%)    <– Key Fibonacci Retracement Level from All-Time High
11.23% @ $19,711 (+145.0%)  <– Nearing All-Time High (ATH)
11.97% @ $21,051 (+161.7%)  <– Potential Fibonacci Retracement Estimate #1
14.69% @ $25,796 (+220.8%)  <– Potential Fibonacci Retracement Estimate #2
18.89% @ $33,199 (+313.8%)  <– Potential Fibonacci Retracement Estimate #3
21.49% @ $37,775 (+370.9%)  <– 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 2019.

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.