Summing Up The Week
It’s not getting easier as both monetary and financial solutions are being applied to a biological problem. Until science develops effective treatments and/or cures for COVID-19, the notorious whipsaw volatility we saw this week will continue.
Let’s look at the news that moved the markets this week…
Despite Fed rate cut to zero, Circuit breakers trip daily
On Sunday, CNBC reported the Federal Reserve bank cut interest rates to zero, with Chairman Jerome Powell saying, “the coronavirus outbreak has harmed communities and disrupted economic activities in many countries, including the United States.”
In addition, the Fed launched a massive $700 billion quantitative easing program to try to shelter the American economy from potential effects.
While this approach helped during the 2008 Financial Crisis, the biological nature of COVID-19 means there’s only one fix – a therapeutic treatment or a vaccine. Until that point, it will be difficult to prevent any economic effects due to the virus.
On Monday, the thesis played out as traders continued to panic over the pandemic – the market circuit breaker which trips when the S&P 500 sells off 7% in a day – tripped within the first few minutes of trading.
On Wednesday, the circuit breakers tripped at the open once again, indicating that the stock market volatility will continue for some time to come.
White House proposes $1 trillion Stimulus Package
After President Donald Trump announced that the peak of the virus might not happen until July or even August during a press conference on Monday, the market collapsed even further.
On Tuesday, Trump proposed a $1 trillion stimulus package in an effort to keep small businesses afloat and help workers who are among the many with less than an average $400 in savings.
CNBC reported Wednesday that there was a lot of debate in Congress about which industries should be bailed out with the airline industry asking for $150B in aid, $60 billion of which would go to Boeing (BA) alone. Boeing is struggling due to pension obligations combined with the frozen production of its 737-Max, its best-selling airplane that it hasn’t been able to sell for more than a year.
NYSE to Close Trading Floor & Switch to Electronic Trading
The New York Stock Exchange (NYSE) announced Wednesday that beginning Monday, March 30, the NYSE trading floor would be shut down out in response to the COVID-19 novel coronavirus. All trading will be switched to electronic means only.
“Our markets are fully capable of operating in an all-electronic fashion to serve all participants, and we will proceed in that manner until we can re-open our trading floors to our members,” said Stacey Cunningham, president of the New York Stock Exchange. “While we are taking the precautionary step of closing the trading floors, we continue to firmly believe the markets should remain open and accessible to investors.”
Next Week’s Gameplan
In the era of COVID-19 prevention, it’s time to hunker down and get conservative.
My typical approach to the markets is usually conservative; I prefer to make smaller buys at closer ranges rather than try to time big buys.
However, following President Trump’s press conference on Monday where he referenced COVID-19 not peaking until August or later, the gameplan must now be shifted into an even more conservative approach – much less frequent buys.
Now that there are no commissions on trades basically anywhere, even the smallest investor can afford to be as slow and small as possible in a bear market like this.
Until a convincing therapeutic treatment or vaccine for COVID-19 is developed, rallies should be sold, not bought.
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.
Click chart for enlarged version
Bitcoin Price (in USD)
Bitcoin Price Action
Bitcoin continues to confound, such are the ways of uncorrelated assets. Despite the stock market selling off in spectacular fashion this week, Bitcoin appears to be attempting to regain equilibrium around the mid-to-high $6000s with a weekly high set earlier on Friday at $6990.00. The weekly low remains $3858.00, hit during the epic death-drop last week.
The Bullish Case
Now that Bitcoin has closed below the Support of Last Resort, the support turns into resistance, meaning Bitcoin will encounter pushback when it tries to break through. The line’s currently around $7800 which is a 24.69% gain from here, so that’s nothing to sneeze at.
If Bitcoin breaks through the Support of Last Resort and makes a stab at the LIne That Shall Not Be Crossed which is currently around $9000, that means a potentital gain of 43.88% Upper limits from there include the $13868.44 high of 2019 followed by Bitcoin’s all-time-high near $20,000.
The Bearish Case
While those of us who have been watching the space for some time weren’t surprised by Bitcoin’s ability to pull back -50% to hit $3858.00, what was truly shocking was the ferocity with which the move was made.
The bounce we’ve seen this week may simply be an oversold bounce to cool down the high Relative Strength Indicator (RSI) numbers before Bitcoin makes a steeper stab at lows beyond $3858.00.
As I said last week, I’m concerned that $3858.00 has no choice but to break, and that Bitcoin’s 2018 low of $3129 is too close to rely on. The next major trendline of support which I mentioned last week (but isn’t included on this week’s chart) is currently at $2089.
Current Allocation: 16.631%
Current Per-Coin Price: $4,907.89
Current Status: +27.457%
Over last weekend, Bitcoin’s price stabilized at a few percent above my per-coin cost basis. Given the ferocity of Bitcoin’s sell-off last week, I’m still not convinced that $3858 will be Bitcoin’s bottom for this Bear Run.
On Sunday, I used the opportunity to lighten up my allocation slightly when Bitcoin lost support. While the sale lowered my per-coin price negligibly from -0.87% from $4970.19 to $4926.92, but more importantly reduced my allocation from 20.671% to 16.976% in preparation for potentially much lower lows.
On Friday, my position was up more than 30% so it was time to take a little off the table if we lost the 1-hour low, which we did. I sold a very small amount at $6422.98 which further lowered my per-coin cost to $4907.89, a reduction of just -0.39%.
Bitcoin Buying Targets
Based on past support levels, Moving Averages (both Simple and Exponential), and a positively terrifying past trendline, I’ve come up with the following buy targets:
1.713% @ $3828
8.843% @ $3023
4.313% @ $2867
13.62% @ $2462
7.78% @ $2323
16.24% @ $2090
30.86% @ $1786
Bitcoin Selling Targets
For the moment, I’m going to continue the approach of taking small profits as Bitcoin makes higher-highs and stabilizes. Depending on how high Bitcoin ends up going before a big drop, I’ll decide to lock in the entire trade when I feel we may have run our course.
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. Rather than increasing my quantity on the way down, I’m used a fixed amount of money, so I’m basing how much I buy by how likely I think Bitcoin will drop to a certain level. In this case, I don’t think it’s likely Bitcoin will be able to break its $3128 low, so my quantities under that price point are less to account for the chances it will get to them.
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 March 2020, Bitcoin dropped -63.33% to a low of $3858.00, mostly in 24 hours
- From $3858.00, Bitcoin rebounded +62.14%… in a week!
- 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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