Summing Up The Week

There was actually news outside of the Wuhan Coronavirus this week, but it sure didn’t feel like it. The markets seemed to be doing really well with the virus news mid-week – even rising after the World Health Organization (WHO) declared a public health emergency. Then, the brown stuff hit the fan…

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

Market News

Wuhan Coronavirus Fears Hit The Markets

China found more than 2,860 cases of coronavirus and a death toll over 80 before the markets opened on Monday, reported CNBC. The news caused the index futures to sell off substantially before the week even started.

Later on Monday, the CDC announced that it was monitoring 110 possible coronavirus cases across 26 different states. “The disease isn’t spreading within the community in the U.S. and the risk to the public right now is still considered low,” it said in a release.

By Monday night, China reported 106 deaths and 4,500+ infected people, however, the World Health Organization (WHO) still hadn’t declared the virus a public health emergency.

On Tuesday, the coronoavirus outbreak exceeded the SARS epidemic as more than 6,000 cases were reported in China.

Starting Tuesday, CNBC dedicated a rolling blog to provide coronavirus updates.

On Wednesday, the situation worsened as WHO officials said the coronavirus spread outside of China is of “grave concern,”. The Federal Reserve Bank also declined to comment on the potential economic impacts of the epidemic during their meeting on Wednesay.

On Thursday morning, China announced that the death toll had breached 160 while India confirmed its first case of the virus. Although the U.S. stock market indexes had recovered from Monday’s selloff on Tuesday and appeared to stabilize on Wednesday, the markets sold off again when they opened on Thursday following the news.

Later on Thursday, the Center for Disease Control (CDC) confirmed the first person-to-person transfer in the United StatesAs of Thursday morning, there were 8,130 cases confirmed in China with a minimum global total of at least 8,240.

With an hour left before the markets closed, WHO declared the coronavirus a global health emergency. The designation helps mobilize financial and political support around the globe to help contain the outbreak.

The market sold off substantially on Friday following news that airlines have halted service to China over concerns about the virus.

And then things got even worse when the CDC issued a mandatory quarantine for Wuhan passengers, its first mandatory quarantine in more than 50 years.

Why does a disease epidemic cause stocks to sell off?
Disease epidemics or pandemics cause markets to sell off because the global economy depends on the strength of consumer buying power. When consumers fear contracting a potentially-deadly illness, they do not leave their homes and do not spend money.

This decrease in spending can have ripple affects on the entire global economy. Since stock markets are predictors of future growth and earnings, the potential negative effects of a disease – especially if when those effects are unknown – cause investors and traders to take profits and sell companies short.

The stocks of companies which permanently lose sales due to an epidemic suffer the most.

A consumer interested in buying a new mobile phone, for example, will likely still do so following the epidemic. However, any daily purchases such as a daily cup of coffee or lunchtime meal cannot be regained and directly impact a company’s earnings, since a customer who skips buying a cup of coffee today doesn’t buy two tomorrow to make up for the lost purchase. Multiply this by days or weeks and it’s easy to see how a virus scare can dramatically damage company earnings.

Specific sectors that typically see the most pain during virus outbreaks include travel-related stocks such as hotels, airlines, and cruise-lines; any experiential stocks such as theme parks, movie theaters, and casinos; and almost all restaurant stocks.

U.S. Q4-2019 and Full-Year 2019 GDP as expected

The Commerce Department released its annual Gross Domestic Product (GDP) report on Thursday, confirming initial estimates that the economy grew 2.3% for the full year of 2019 and 2.1% in the fourth quarter, reported CNBC.

The growth falls short of the Trump administration’s claims that the economic stimulus would lead to GDP increases of at least 3%, which hasn’t happened, yet. 

U.S. Federal Reserve leaves rates alone

On Wednesday, the Federal Reserve Bank announced it will hold benchmark rates steady in a range between 1.5%-1.75%, where the rate has been since last year, reported CNBC.

The Fed also reiterated its intent to focus on inflation, with some Fed officials expressing concern over the inability to get inflation to the 2% level. Consumers naturally prefer an inflation-free environment, however the Fed worries low expectations will keep inflation and interest rates too low.

Without increased interest rates, the Fed has no ability to make adjustments to aid should there be a future economic downturn, a real possibility as the Wuhan coronavirus worsens.

U.S. Air Force Plane Crashes in Afghanistan

Early on Monday, reports of a plane crash in Afghanistan started making news in the U.S. Later on in the day, the U.S. Air Force announced on CNBC that it was an Air Force plane which crashed in central Afghanistan. The plane, a military E-11 built by Bombardier, crashed in an area of Afghanistan territory currently under Taliban control.

Air Force’s Chief of Staff, General Dave Goldein, could not confirm details during Monday’s briefing and urged patience with reporters, “We don’t know the status of the crew,” he said. “Here’s another thing I’ll share with you – every time I’ve been through this … the first reports are always wrong, always wrong.” 

Later in the afternoon, reports that the plane did not crash due to enemy weaponry fire came in, suggesting some other kind of failure.

Next Week’s Gameplan

This is what a systemic sell-off looks like. The sell-off isn’t targeting a specific sector – it’s a panic about the potential decline of global economic growth until we can get the Wuhan Virus under control.

There will be buying opportunities, but, remember, now that there are no costs for trading, even the smallest-sized investor can afford to be patient and to Buy in Stages with small increments.

Without knowing more about the virus, we have no idea how bad this sell-off will get before we see a bottom.

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

Important Disclaimer

Get Irked contributors are not professional advisers. Discussions of positions should not be taken as recommendations to buy or sell. All investments carry risk and all readers must accept their own risks. Get Irked recommends anyone interested in investing or trading any asset class consult with a professional investment adviser to determine if an investment idea is suitable to them and their investment goals.

Bitcoin Price (in USD)

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Weekly Change

Bitcoin Price Action

Bitcoin had quite the exciting week! It held last week’s $8216.71 low and rocketed higher to make a new high at $9574.68… right at the Line That Shall Not Be Crossed.

Bitcoin’s next move is key, if it loses support and heads lower, it may fall all the way down to the rising Support of Last Resort at the mid-to-upper $7000s. If that doesn’t hold, we could be looking at new lows if Bitcoin falls to the Next Support of Last Resort, currently rising around $5250.

If Bitcoin breaks through the resistance, the next stop could be 2019’s highs up in the $13,000-$14,000 range.

Bitcoin Gameplan *Trade Closed*

When Bitcoin was rejected from the $9000 and started to lose ground on Tuesday, I decided it was time to use a stop-loss limit order to protect the gains I had in my position from over the past few months. My sell order filled at $8922.43, pulling out my capital but keeping my profits as cryptocurrency.

As a matter of lucky timing, I closed this trade on 1/28/2020, exactly three months after opening it on 10/28/2019. The trade captured an overall gain of +12.77% from the capital I was able to put in place, giving me a monthly gain of +4.257% or an annualized return of +51.08%.

The overall gain was only 0.72% of my desired maximum allocation, however that’s still not shabby considering I only risked 5.64% of my maximum on the trade.

Why keep profits as cryptocurrency and not USD?
I don’t trade in the cryptocurrency space to make profit in U.S. Dollars (USD). I trade in sector so I can accumulate more crypto for “free” as a long-term speculative asset. By keeping my profits in cryptocurrency, I expose myself to potential upside movements in the sector while limiting downside risk to my investment capital.

In other words, I won’t experience (as much) FOMO if Bitcoin moons to $30,000+ and I’m not in a trade at the time because my profit-crypto will increase in value, however, I’m also not “all-in” at $9,000-per-coin if the price suddenly crashes to $1,000; I’ll still have investment capital available to add more to my position at lower levels if I choose to.

*Trade Opened*

On Wednesday, I opened a new trade when Bitcoin’s price action started to show a surprising amount of strength, starting a small position at $9031.94 with 1.57% of my maximum desired allocation.

Bitcoin Buying Targets

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

0.43% @ $8958
0.43% @ $8268
0.43% @ $8187
0.43% @ $7827
0.43% @ $7368
0.43% @ $7067
0.63% @ $6257
1.88% @ $5557
1.88% @ $5267
5.75% @ $4127

Bitcoin Selling Targets

Given my current small allocation, I have no designated selling targets at this time.

 

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.

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