Summing Up The Week
I’ve been wondering for weeks why no one seemed to be concerned about the coronavirus in the stock market.
Well, those thoughts were finally put to rest this week after numbers released over the weekend made investors realize that the coronavirus really is going to do some damage to the global economy.
While there may have been other news this week, you wouldn’t have heard it if you paid attention to any of the financial networks. Actual coronavirus news gave way to coverage of the historically-epic drops we saw every single day this week.
Let’s take a look at the specifics..
Market sells off DRAMATICALLY on Coronavirus spread
The markets finally woke up and recognized the coronavirus as a threat, selling off dramatically this week following news that the coronavirus COVID-2019 is spreading in waves to other countries, reported CNBC. On Monday and Tuesday, the Dow Jones Industrial Average (DJIA) lost -8.75%, nearly 2,000 points from its high.
The Dow Jones Industrial Average and NASDAQ both dropped in excess of 16% from last week’s high to this week’s low, and the S&P 500 dropped slightly more than 15% – all historic one-week drops never seen in the history of the indexes.
The markets had been virtually ignoring the impact of the coronavirus up until Monday with each selloff being bought into aggressively by Bulls. Analysts say that while the coronavirus will be contained eventually, its spread will slow global economic growth at least temporarily.
The longer the coronavirus spreads without containment or treatment, the more substantial its impact on global economic growth, with some analysts saying that a global recession may be a very real possibility.
Bank of America says Bear Market May Be Incoming
On Saturday, CNBC reported that Bank of America securities “bear market signposts” indicator is starting to trigger that a bear market may be incoming. B of A uses a list of 19 signals including fundamental and sentiment indicators to predict bear markets.
In the past, whenever 80% of the indicators are triggered, a bear market has occurred. Currently, 67% of the indicators are triggered.
A bear market is when stocks sell off 20% or more from their highs.
Is a bear market close behind?
Next Week’s Gameplan
How do you handle a crisis like coronavirus?
Over the course of 2019, I had been taking profits after experiencing the 20% pullback at the end of 2018 and realizing I didn’t have enough cash on the sidelines to take advantage of the lower prices.
I ended up lightening up too much and had 50% of my portfolio in cash heading into this selloff. So, now what?
The coronavirus is very different from 2018’s selloff. In 2018, the concerns were over financials and a Fed raising interest rates willy-nilly. Those are man-made problems which can be resolved by people.
The coronavirus is an unknown. While I have complete faith in humanity to both contain the virus as well as eventually come up with a therapeutic treatment as well as potentially a cure, we have no idea how long it will take. The longer the coronavirus keeps consumers inside and employees at home, the global economy will see a slowdown. How much is anyone’s guess.
Instead of seeing stocks as pieces of paper with a specific value, I find it’s better to look at them for what they actually are – claims of ownership in a company.
This is why it’s so important to only buy stock in quality companies you believe in.
If you have a 20-year+ time horizon like me, then ask yourself: will the company I’m buying today be better or worse off in 20 years? If your answer is worse, you’ve got to be looking at the wrong company. Otherwise, you’re likely getting the company at a substantial discount after this week’s selloff.
Plus, don’t buy all at once. Buy in stages. Now that Schwab has kicked off the revolution of commission-free trading, even the smallest investor can buy slowly since picking up a share at-a-time costs no more than buying round lots of 100.
Personally, I’ve been buying small amounts in almost all of my positions because I believe in them for the long-term.
Do I think we could potentially see a sell-off of 50% in the markets?
Yes. It’s definitely a possibility and it’s why I have a plan set out in advance.
If this global economic slowdown damages the economy as badly as the Financial Crisis of 2008, I have set out a plan that allows me to buy in stages all the way to a 50% (and beyond, in fact).
If you haven’t already, spend some time making a plan: What will you do if your positions head lower? What will you do if they’ve bottomed this week and head higher?
Having a gameplan in advance makes all the difference. No selloff ever feels “right,” but if you don’t ever do any buying, you never will. By scaling in instead of buying all at once, you both capitalize on selloffs while also protect yourself in case the market’s not even through.
And, as always, remember – if the selloffs are freaking you out, take a break, go outside, and realize the world isn’t ending. This, too, shall pass.
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)
Bitcoin Price Action
As I said last week, Bitcoin did end up testing the Line that Shall Not Be Crossed, and while it looked like it held at first, it retained its status and name, sending Bitcoin careening more than -12%, setting a new weekly low at $8428.80. The weekly high is now $10,030.00 since Bitcoin was unable to crack that level before crashing.
Now that Bitcoin’s in a Bearish pattern, it’s time to look for a retest of the Support of Last Resort, currently floating around the $8000-$8200 level.
If it holds like it has in the past, we may see Bitcoin attempt a Bullish break through its high of 2019 in the $13,000s and run at its all-time high. If the support fails, Bitcoin’s heading much lower, potentially lower than 2019’s $6430.00, as the next line of support appears to be around $5450-5800.
What happened? Isn’t Bitcoin “digital gold” and a Store-of-Value (SoV)?
If you pay attention to the media and many of the analysts, you’ll hear people describe Bitcoin as digital gold – a place for investors to store their wealth. I don’t subscribe to this thought.
For me, Bitcoin and other cryptocurrencies are uncorrelated assets. Unlike stocks, bonds, and almost every other investment which is tied to a country’s currency, Bitcoin and crypto are independent of other countries.
Instead of expecting cryptocurrencies to go up when the stock market goes down (as many thought it would this week), it’s better to see them as entirely uncorrelated – a fact that Bitcoin has proven over and over whenever analysts think they’ve finally figure out what other asset moves with Bitcoin, only to have their thesis dashed to pieces as Bitcoin once again dances to its own tune.
I mentioned last week that I was tempted to add to my position when Bitcoin first started selling off, but my discipline with crypto is to never buy above my per-coin cost, and this week showed why sticking with discipline works.
Bitcoin tore threw two of last weeks’ price targets which allowed me to add another 1.34% to my allocation on the way down, leaving me with 2.1% of my desired amount at an average per-coin price of $8947.89, a reduction of -0.983% since I first opened this trade.
As of writing, my position is down a relatively negligible -4.479% (in terms of crypto).
As you might expect, my next buy targets revolve around the Support of Last Resort. In the past, this key support line has held steadfast, so my first buy is right on the line, with a few buys at key percent drops below the line.
After that, it’s time to look at 2019’s $6000-$7000 ranges for potential targets before looking much, much lower.
Bitcoin Buying Targets
Using a combination of moving average, trendline, Fibonacci Analysis, I’ve come up with the following ten (10) buying targets:
1.05% @ $8169
1.05% @ $7805
1.05% @ $7510
1.05% @ $6667
1.05% @ $6104
1.07% @ $5887
11.03% @ $4005
15.50% @ $3227
15.82% @ $2578
28.13% @ $2076
Bitcoin Selling Targets
Just like the past few weeks, I keep no set upside targets when I hold a small allocation (typically less than 5% of my total target).
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.
- From June 2019, Bitcoin dropped -53.64% to a low of $6430.00 in December 2019.
- From December 2019’s low, Bitcoin rebounded +64% from $6430.00 to $10,522.51.
- From February 2020, Bitcoin has dropped -19.90% to a low of $8428.80
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 less than 2% 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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