Summing Up The Week

The earnings season kicked off with a bang as banks – already elevated to high valuations year-over-year – reported stellar earnings and rocketed even higher. In the meantime, the week was filled with lots of other positive news including the ‘Phase One’ trade deal signed with China and record homebuilding numbers.

The market continues to shrug off any bad news, ignoring the delivery of the articles of impeachment from the House to the Senate as well as a decreasing job-openings number released on Friday.

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

Market News

Bank Earnings Blow the Roof Off

J.P. Morgan (JPM) and Citigroup (C) reported spectacular earnings on Tuesday, surprising analysts and causing their stocks to head higher despite previously-thought lofty levels going into earnings, reported CNBC.

J.P. Morgan’s annual profits reached record levels at $36.4B with the company citing a surge in bond-trading revenues in Q4. Citigroup also saw an increase in fixed-income trading leading to earnings with bond-trading revenue exploding 49% higher.

Typically, the banks kick off earnings season and, often, their performance can dictate the rest of the season. With earnings like these, investors may have a lot to look forward to over the coming weeks’ company reports.

Truce? Trump Signs ‘Phase One’ Trade Deal with China

Investors spent much of the week waiting for the Wednesday signing of the Phase One Trade Deal between the U.S. and China to see the details of the much-anticipated agreement.

In this first agreement, China agreed to purchase an additional $200B in U.S. goods over two years as well as crack down on intellectual property theft and the forced transfer of American technologies, reported CNBC. 

Articles of Impeachment Delivered to Senate

Articles of Impeachment against President Donald Trump were officially transmitted to the Senate on Wednesday, with a trial set to begin as early as next week, reported CNBC.

I included this news story because of its somber historical importance, not because the markets reacted (which they didn’t).

Before the articles were sent to the Senate chamber, House Speaker Nancy Pelosi signed a resolution allowing her to designate the House members who will serve as managers of the impeachment trial.

Why didn’t the markets react to impeachment?
At this point, the news is “baked-in.” In other words, all investors and traders knew the articles of impeachment had been passed in the House in December and would, therefore, be delivered to the Senate at some point. The event was not a surprise.

In addition, with the need for at least 20 Republican senators to vote for the impeachment of Trump, the market is fairly sure the impeachment trial will have no real impact and that is why the market did not react – no ‘new’ news.

S&P 500 Makes Insignificant Record Significant

The market’s inexhaustible climb higher continued this week with the S&P 500 topping 3,300 for the first time ever on Thursday, reported CNBC.

Why call the number ‘insignificant?’
Because the S&P 500 is an index of 500 individual companies weighted to their market cap. While traders and investors like big, round numbers like 3,300, it actually means nothing to the value of the index.

At any rate, the market’s gains this year have been downright shocking, with analysts pointing to positive earnings data and strong economic growth as the reasons behind the markets seemingly never-ending Bullish climb higher and higher.

Job Openings Fell to Lowest Level in Two Years

The Labor Department’s report on Friday showed job openings plunged to their lowest level in nearly two years following increased hiring in November tightening the job market, reported CNBC.

Total vacancies dropped 561,000 to 6.8 million, the lowest since February 2018. However, analysts say job openings still outnumbered unemployed Americans by just under one million.

Housing Starts soar 16.9% to 13-Year High

U.S. homebuilding jumped to a 13-year high in December as activity increased across the board, reported CNBC on Friday.

Year-over-year, housing starts have soared 40.8% as of December with an estimated 1.29 million units started in 2019, up 3.2% compared to 2018.

Analysts are pointing to the low Federal Reserve interest rate leading to low mortgage rates as part of the increase in housing demand. In addition, existing home inventories are particularly low, causing a greater demand for new homes, particularly starter homes, reported mortgage finance agency Freddie Mac.

Housing starts are typically an indication of a strong economy as well as a strong consumer since a home is the biggest purchase most Americans will make in their lifetimes.

Next Week’s Gameplan

The market’s refusal to pull back in even a moderate amount can be frustrating for investors looking to put new money to work. 

If the market doesn’t pull back to my price targets for my individual holdings, I will simply continue to sit on my hands and do nothing. The gains have been stellar so far this year, and although I’d love to have the opportunity to put more money to work, blow-off tops are typically followed by significant sell-offs, so waiting to see what the market does when it finally pulls back will be key to determining future gameplans.

While I’m tightening my buy targets on my retirement accounts’ index fund ETFs, I’m sticking to my discipline on my individual stock holdings.

It’s not a matter of if a pullback is coming, it’s when.

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

Last week’s low of $7671 was the last chance to get in before Bulls pushed Bitcoin an additional 10% higher this week, rocketing to a high of 9013.00 set earlier on Friday, January 17. 

From here, the Line That Shall Not Be Crossed is fast approaching at the $9650-$9800 mark. The Bulls will need to push Bitcoin above the Line That Shall Not Be Crossed and close above it on the Daily or, preferably, Weekly timeframe to really solidify the momentum of the current run hasn’t ended.

On the bright side, the gains are coming at a much more practiced and methodical pace, historically unusual for Bitcoin which prefers to rocket up and down in 20% increments at a time.

While Bitcoin’s current price action resembles a more traditional asset class, it’s worth noting that Bitcoin often acts almost like a cobra, entrancing its victims with seemingly-logical movements only to suddenly revert to its old ways without warning, selling off or rocketing higher in huge movements.

Currently, Bitcoin is only just now approaching overbought territory on the Relative Strength Indicator and isn’t even close to becoming overbought on the Weekly timeframes.

Maybe there actually is more upward movement left in the tank?

Bitcoin Gameplan

As Bitcoin bounced between the $8500-$8900 mark, I used stop-loss limit sell orders each time it appeared as if Bitcoin may be losing its bullish edge to pull small amounts of my position off.

By using stop-loss orders, I reduce the per-coin cost of my position in case Bitcoin pulls back for a swing to a more powerful bearish trend.

The sales reduced my per-coin cost by -2.56% from $8028.81 to $7823.54 and left me with 5.05% of my target allocation in the position. As of the price of this writing, my position has a gain of +13.39%. 

Bitcoin Buying Targets

Here are my next ten (10) target buying quantities and price targets from here:

0.36% @ $7658
0.34% @ $7288
0.33% @ $6877
0.32% @ $6687
0.30% @ $6317
1.64% @ $5726
3.68% @ $5116
2.22% @ $4887
7.34% @ $4277
12.29% @ $3657

Bitcoin Selling Targets

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

8.71% @ $9,623 (+22.5%)    <– Key downward trendline
10.50% @ $11,559 (+47.25%)    <– Additional resistance trendline
12.46% @ $13,730 (+75.00%)    <– Nearing 2019 High
15.46% @ $17,047 (+117.4%)  <– Key Fibonacci Retracement Resistance
18.82% @ $20,791 (+165.25%)  <– Predicted Fibonacci Retracement Point #1
23.46% @ $25,896 (+230.5%)  <– Predicted Fibonacci Retracement Point #2
30.14% @ $33,289 (+325.0%)  <– Predicted Fibonacci Retracement Point #3

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.