Summing Up The Week

Coronavirus news headlines continue to grip the markets.

While the Democratic contest clearing out a number of candidates to leave only Joe Biden and Bernie Sanders seemed to cause a market pop following Super Tuesday, the markets gave back those gains over the rest of the week.

It’s a virtually sure bet we’ll continue seeing significant market volatility until we know more about COVID-19, develop potential therapies, and/or have a vaccine on the horizon.

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

Market News

Market Volatility Now Name of the Game

After last week’s blowout down days, the market bounced on Monday with the indexes seeing gains of 1-1.5% in midday trading. This type of price action might seem counter-intuitive given that the coronavirus news over the weekend was awful with the first U.S. deaths reported in Washington state and the first case in NYC.

However, the markets were spectacularly oversold from last week’s routs, and whenever the markets are spectacularly oversold, speculators, long-term investors, and quantitative traders jump in (the latter jumps in knowing the markets will see a bounce and then sells before the market reverses course).

For me, I stick to the rule of buying on red days and selling on green days. 

As of Monday, there was no good news in sight, so the market’s powerful bullish move was simply a result of price action, not positive fundamental news. While investors piled back into the markets out of FOMO on Monday, I did all the buying I’m going to do at lower levels last week and will wait to see earnings reports (or another giant selloff) before putting any additional funds to work.

Without a change in fundamentals, the potential we’d see the course reverse later in the week was far greater than a strong recovery… and, boy, did we see course reversals! However, despite the markets’ stomach-flipping ups and downs, the indexes still haven’t tested the lows of last Friday (which is not to say they won’t make a run at those lows at some point).

Federal Reserve Cuts Interest Rate to Combat Coronavirus

In order to combat the selloff, the Federal Reserve bank cuts its benchmark interest rate by a whopping 50 basis points (0.5%) on Tuesday, reported CNBC.

Last time I checked, interest rates can’t cure any disease, and the markets agreed with me, selling off despite the substantial emergency cut.

Jim Cramer, among many other market analysts, pointed out that the interest rate cut might have the opposite effect than the Fed intended as it makes investors more nervous, indicating the Federal Reserve sees the situation as even more severe than investors thought previously.

WHO Puts Coronavirus Death Rate at 3.4% Globally

After the markets closed on Tuesday, the World Health Organization (WHO) said the fatality rate for COVID-19 is 3.4% globally, much higher than previous estimates of about 2%, reported CNBC.

Oddly, this incredibly negative news had no discernible effect on the markets which, although they dropped on Tuesday, rebounded Wednesday (before dropping again on Thursday and Friday… wheeee!).

Next Week’s Gameplan

With the unknown unknown of COVID-19’s effects on the global economy, navigating these market waters can definitely make anyone nervous.

It’s times like these that I look to successful long-term investors like Warren Buffet, who said this week that Berkshire-Hathaway has started making strategic buys. Just like Rothschild who said “Buy when there’s blood on the streets…,” Buffet has a gentler adage with identical meaning: “Buy when others are fearful, be fearful when others are greedy.”

While it appears that the market will certainly continue heading down, the trick here is that I don’t know how low it will go before it bottoms. I can’t afford to not be in the markets or to miss significant buying plans, so I have a gameplan for different price levels for both my individual companies and my ETF retirement accounts.

At those levels, I make calculated buys, regardless of which way the market appears to want to head. Then, I plug in my next lower level, and I wait. Just like I did this week…

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

Over the course of the last week, Bitcoin appeared to want to retest the Support of Last Resort before holding the weekly low of $8400.00 and bouncing.

Now, Bitcoin seems to be trying to break through the Line That Shall Not Be Crossed. 

The Bullish Case
Bitcoin breaks through the LTSNB and makes for the $10,500-10,600 area where it experienced resistance before this most recent pullback. If it can break through that point, then it may make an attempt at higher numbers and even potentially the high of 2019 in the $13,000s.

The Bearish Case
Bitcoin experiences too much resistance at the LTSNB and pulls back. Given that this is its second attempt, the Bulls will likely lose the momentum, and with the SLR line approaching quickly at $8300, the likelihood that this failure will result in a retest of the SLR is high. If Bitcoin cannot hold its new weekly low of $8400.00, the potential we’ll see the crypto drop through $8000 is high. 

Bitcoin Gameplan

After adding to my Bitcoin position twice two weeks ago, the past week was incredibly uneventful with Bitcoin neither going low enough to hit any of my buying targets or heading high enough to make enough profit to close the position.

I continue to hold the same allocation as last week, 2.1% of my desired amount at an average per-coin price of $8948.89.

As of writing, my position is up a negligible +1.81%.

Bitcoin Buying Targets

Using a combination of moving average, trendline, Fibonacci Analysis, I’ve come up with the following ten (10) buying targets:

0.528% @ $8307
0.528% @ $8044
0.528% @ $7891
1.06% @ $7583
1.06% @ $6667
1.21% @ $6063
9.88% @ $3983
13.15% @ $3227
13.60% @ $2578
18.05% @ $2089

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 possible allocation). 

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.
  
• In February 2020, Bitcoin dropped -20.17% to a low of $8400.00.
• Since February, Bitcoin has rebounded 6.58%…

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.