Summing Up The Week

Following its worst week since 1931, the markets rallied to have their best week since 2008 this week. That’s little solace for investors as the markets are still nearly -25% off their highs.

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

Market News

Stimulus Bill Fails in the Senate on Sunday

In the middle of the COVID-19 crisis, all eyes turned to the government in hopes that a massive stimulus bill would help the potentially millions of unemployed. Unfortunately, on Sunday, the stimulus bill failed in a key Senate procedural vote, reported CNBC.

The futures market hit limit-down Sunday following the news.

Federal Reserve Pledges No-Limit Asset Purchases

Monday morning, the Federal Reserve pledged to continue buying assets under its quantitative easing measures with no limit, reported CNBC. 

The asset purchasing program is just one among many the Fed will use to help markets function more effectively in the wake of the coronavirus crisis. The news provided some relief to the markets as this approach represents a commitment to expand its balance sheet as necessary, rather than a commitment to a fixed amount, as in previous crises.

Markets Soar 17%+ on $2 Trillion Stimulus Package

The markets soared more than 10% on Tuesday following Congress announcing its $2 trillion stimulus package and then jumped more than 7% additional on Wednesday for a 17%+ bounce from Monday’s lows to Wednesday’s highs, reported CNBC.

March’s sell-off has been truly historic as the markets plummeted from their highs with a ferocity and speed quite literally never seen before in the history of the stock market. Given such steep declines, vicious bear market rallies like the ones seen Tuesday and Wednesday can happen.

During times of great volatility like these, both traders and long-term investors can benefit from remembering the importance of removing emotion from your market moves – green and red are neither good nor bad, they simply are. Follow your trading plan and let the rest work itself out.

Jobless Claims Hits Historic 3.28M

On Thursday, the U.S. Labor Department reported jobless claims surged to an unprecedented 3.28 million due to the coronavirus pandemic, reported CNBC.

The average forecasts initially expected 1.5 million in claims, although individual analysts had been anticipating a much higher number.

Historically, this week’s number shatters all previous records with the peak of the Great Recession at 665,000 in March 2009 and the all-time record of 695,000 in October 1982.

Federal Reserve Chairman tried to calm people by telling them on NBC’S “Today” Show, “This is a unique situation – people need to understand, this is not a typical downturn.” He continued, “At a certain point, we will get the spread of the virus under control, confidence will return, businesses will open again, and people will come back to work.”

However, as CNBC reported, the near-term damage to the economy will be devastating.

Next Week’s Gameplan

Don’t feel FOMO if you didn’t buy at the bottom last week or this past Monday.

As I’ve been saying for what feels like forever now, until there’s news of a successful COVID-19 therapeutic treatment or progress toward making a vaccine, it remains unlikely that the bottom is in and the possibility we test the lows (or even make all-new lows) is very much in the cards.

Develop a Trading Plan and stick to it, even if you feel like puking when you execute the buy order. With this much volatility in the markets, it’s all about using quantitative approaches and avoiding letting emotion guide your investing decisions as much as possible.

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

When compared with the price action from two weeks ago, this week and last have been particularly quiet. Bitcoin has tested and retested our new Next Support of Last Resort and, so far, it’s held.

Let’s look at the Bull Case and Bear Case:

The Bullish Case

Every few years, the formula to mine a Bitcoin yields half as many coins. This process, called a “halvening” has historically led to exponential price increases as the Bitcoin’s limited quantity is what yields its integral value.

If history holds, then Bitcoin is consolidating at its current mid-$6000 level before it heads higher, potentially breaking through its 2019 high and maybe even trying for the all-time high.

The Bearish Case

While the Bullish sounds all well and good, I’m not entirely convinced. The fact that Bitcoin has already tested the new support line twice does not foretell good news (remember Bitcoin’s Rule of Threes… wherein the third time is when a support or resistance line breaks).

In addition, the sweeping spread between the weekly high of $6990.00 and the monthly low of $3858.00 is a terrifying price gap. Combine all this with the fact that we’re at the end of the March (and thereby entering a new Monthly candle), the potential for downside risk is HUGE.

Unfortunately, I expect Bitcoin to head to new lows based on the global economic uncertainty pushing crypto speculators to cash out so they can pay for necessities. Investors have been selling all asset classes indiscriminately and I have no reason to expect crypto to be different in this case.

Bitcoin Gameplan

Current Allocation: 12.786%
Current Per-Coin Price: $4,879.84
Current Status: +36.28%

Given my nervousness about Bitcoin testing its new $3858.00 low, I’ve been taking small profits as Bitcoin makes new highs to reduce my allocation and per-coin price.

While I’d describe my outlook as Bearish, I want to have enough remaining of my allocation that I could benefit significantly in case I’m wrong and Bitcoin breaks bullish.

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:

0.597% @ $3988
4.367% @ $3238
3.955% @ $3003
3.283% @ $2854
7.864% @ $2310
7.720% @ $2082
14.50% @ $1786
16.03% @ $1388
28.90% @ $1089

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 has rebounded +72.38%
• 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.