Summing Up The Week

Historic job losses, Warren Buffett sees no bargains, and lots of other negative news, yet the market rocketed higher this week. Even Bitcoin broke back through the $10,000 resistance mark (if only momentarily).

Confused? Don’t be.

Read on to find out why the market moves seem to contradict the news.

Market News

Warren Buffett Bails on Airlines – Market Shrugs

Over the weekend, legendary long-term investor Warren Buffett held his annual Berkshire-Hathaway (BRK) shareholders meeting where Buffett announced he had sold all of the shares he held in airline stocks – nearly $10 billion worth as the industry will be forever changed by the COVID-19 coronavirus, reported CNBC.

Although he did say that he’d never bet against America, Buffett also made additional negative comments, such as pointing out he didn’t buy anything during March’s market selloff as he didn’t see any attractive opportunities.

Typically, the markets move based on Buffett’s outlook, and while he seemed bearish on the effects of COVID-19, the markets only sold off in the morning during Monday trading before heading higher to close the day up. 

COVID-19 Mutates – More Contagious than Before

A research study released Tuesday showed the COVID-19 coronavirus has mutated and the new, dominant strain spreading across the U.S. appears to be even more contagious, reported CNBC.

If the coronavirus doesn’t subside in the summer like the seasonal flu, it could mutate further and limit the effectiveness of vaccines being developed by scientists worldwide. “This is hard news,” Bette Korber, a computational biologist at Los Alamos wrote on her Facebook page. “But, please don’t be disheartened by it – our team was able to document the mutation only because of a massive global effort of clinical people and experimental groups.”

More than 20M Jobs Lost? Market Doesn’t Care

The market had a positively insane rally this week, shrugging off bad news including reports out Thursdays that April’s employment report would be expected to show more than 20 million lost jobs and the depth of pain the US economy has seen since its shut down, reported CNBC.

I’m all for optimism in the markets, but this V-shaped rally is ridiculous. I’m more inclined to side with analysts who believe many investors are FOMO’ing into the markets and that we’re in for an epic sell-off sometime this summer (if not sooner).

14.7% Unemployment – Market Skyrockets

Despite more a historic record of 20.5 million Americans losing their job in April, the markets skyrocketed on Friday, but it’s not as paradoxical as you might think, reported CNBC.

Why?

Professionals will point to the fact that the stock market is a forward-looking indicator, not a current or backward indicator. In other words, when the market sold off in excess of 30% in March, the indexes were forecasting April’s unemployment.

A good way of thinking about it is how certain stocks sell off after a news event. Apple (AAPL) is notorious for this – whenever a new iPhone is going to be announced, the stock rises into the announcement only to be typically followed by a selloff after Apple unveils the new phone. It’s not disappointment, it’s just that the news was already priced into the stock as investors knew it was coming.

Of course, this in no way means we’re not going to see another market selloff in the coming months. Even the most bullish forecasts expect we’ll see a 10-15% selloff from Friday’s levels as we proceed through the summer.

Next Week’s Gameplan

The market sectors are diverging dramatically with technology and healthcare leading the way higher while industrials and financials lag significantly behind (and don’t even think about retail, travel, car manufacturers, or leisure stocks). It’s a stock-picker’s market and picking wisely is crucial.

If you’re a long-term investor, some of the financials and industrials may be bargains for a 20-year time horizon, but over the short run, you’re in for a world of pain.

On the other hand, while the high-flying tech stocks and healthcare companies may look tempting, just remember that the higher they rise, the further they may fall.

As you’ll see in both my Investments in Play and Speculation in Play portfolios, I’m taking far more profits than I am adding to existing positions (however, I am still adding here and there).

My plan for next week definitely remains the same – keep taking profits as I have them, but strategically add to positions if an opportunity presents itself. 

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

The Halvening Approaches! (I know it’s called “the halving,” I just prefer the more Lord of the RIngsy sound). 

Next week, the number of Bitcoins miners receive for each section they “mine” will be cut in half, increasing scarcity of the asset and, within theory, having the same approach as the Federal Reserve bank raising interest rates – tightening.

With half as many Bitcoins released into the wild each day, will prices go up or down?

So far, Bitcoin has been rocketing higher into the actual date of the halvening taking place next week, cracking through the $10,000 mark on Thursday to make a new weekly high of $10,079.00.

The Bullish Case

Bulls will point to the historic nature of the halving process. Typically, Bitcoin will sell off shortly after the halving followed by significantly higher prices than ever before. In addition, many Bulls believe that the epic 50%+ sell-off Bitcoin saw in March indicates we won’t see another selloff after The Halvening and that Bitcoin’s getting ready to “moon” (i.e. price go up big time, make lots of the monies). 

The Bearish Case

Bears will argue that Bitcoin was more unknown during its last Halvening years ago. Now that the greater market is aware of the process and what it means, Bears believe that this will be a “Sell the News” event and that Bitcoin will experience an incredibly steep selloff after the Halvening executes. With the monthly low down at $3858.00, there’s no arguing that Bitcoin has a far way to fall and still hold a higher-low than March.

Bitcoin Gameplan

Current Allocation: 1.615%
Current Per-Coin Price: $8,599.27
Current Status: +15.998%

Bitcoin was experiencing significant resistance at the $9100-9200 level last week leading me to take some profits off the table on Monday, lowering my per-share cost from $8640.46 to $8599.27, a slight reduction but freeing up allocation to use should the Bears be right about a potential post-Halvening sell-off.

Yes, I’m going to keep calling it The Halvening…

Bitcoin Buying Targets

After seeing Bitcoin’s resilience and feeling the chances of seeing prices below $3,000 are far reduced, I’ve become more aggressive, increasing both my quantities and raising my re-buying targets based on past support levels and Moving Averages (both Simple and Exponential). Here’s the plan:

0.606% @ $8327
0.666% @ $8121
0.666% @ $7891
0.666% @ $7629
0.888% @ $7017
0.888% @ $6746
0.888% @ $6228
1.907% @ $5633
8.488% @ $4308
7.502% @ $3786

Bitcoin Selling Targets

Now that I’ve already trimmed a bit off the position, it’s the waiting game. If I can lock in the profits I want, I’ll close the trade and start building a new one. If Bitcoin drops before it hits reasonable profit margins, I’ll hang on to what I have and add if Bitcoin’s price works down to one of my buying targets.

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 +161.25% to $10,079.00 in May.
• 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.