Summing Up The Week

The week was quite volatile with the market swinging both directions thanks to a spate of both good and bad news, kicking off the week with a bit of a selloff and switching to a rally when manufacturing and potential COVID-19 treatments made headlines.

It all came to a head on Friday when Apple announced it would be closing stores in states seeing a resurgence in coronavirus cases, causing the markets to sell off.

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

Market News

Selloff to Start the Week thanks to COVID Fear

Dr. Scott Gottlieb, former chair for the FDA, warned that U.S. coronavirus hot spots ‘could quickly get out of control’ on CNBC during a Monday morning show.

While many medical experts, including Gottlieb, assure that the U.S. will not see a countrywide shutdown as we experienced in March, the possibility of state-by-state shutdowns due to a second wave of COVID is very real.

The stock market sold off on Monday after weekend numbers showed a spikes in new COVID cases in many states with reopened economies.

Empire State Manufacturing Index Surprises to Upside

The Empire State Manufacturing Index rose to -0.2 versus market expectations of -35, an upside +34.8 surprise, reported CNBC on Monday.

While the news didn’t turn the markets around, the optimism for future activity in manufaturing in the New York area hits its highest level in almost 11 years, since the financial crisis in 2008-2009.

The survey posted a -0.2 in June and measures the percentage of firms reporting expansion against those seeing contraction. June’s figure is up 48.3 points from May with economists having expected -35 in June.

The improving conditions could foretell good signs for New York City as it was one of the hardest-hit hotspots globally due to the coronavirus with 17,193 deaths, 15% of the total deaths in United States.

Federal Reserve to Start Buying Individual Corporate Bonds

The Federal Reserve Bank caused a stunning reversal in the market on Monday when it announced it would start buying individual corporate bonds, reported CNBC. Before Monday, the central bank had been buying only Exchange Traded Funds (ETFs) and had said it would buy individual issuance on the primary market.

The program has the ability to purchase up to $750 billion in corporate credit, and provides a substantial backstop to any market selloff risk.

Positive COVID Treatment, Retail Sales, Infrastructure

The market continued its rally on Tuesday when multiple reports said dexamethsone can help critically ill coronavirus patients, a retail sales report that showed positive results, and hopes President Trump might announce a $1 trillion infrastructure plan later on Tuesday, reported CNBC.

May’s retail sales report showed a 17.7% increase in May – the biggest monthly jump ever – far exceeding the 8% expected by economists.

Despite the seemingly never-ending rally, a Bank of America (BAC) survey revealed a record number of investors believing stocks are overvalued at the current levels.

Powell: “Significant Uncertainty” about Recovery

During his semiannual testimony before Congress on Tuesday, Fed Chairman Jerome Powell warned about “significant uncertainty” regarding the pace of the U.S. economic recovery, specifically pointing to small businesses and lower-income and minority populations as those most at-risk, reported CNBC.

Powell went on to point out that economic output and employment are both far below their levels before the economic shutdown, repeating cautionary comments he made last week. 

Despite Powell’s undeniably bearish tones, the stock market continued higher during Tuesday morning trading, likely due to the backstop the Fed has been providing the stock market by buying corporate debt of all kinds.

Mortgage Applications to Purchase Homes at 11-Year High

According to the Mortgage Bankers Association’s seasonally adjusted index, mortgage applications to purchase a home rose 4% last week from the previous week, an astounding 21% higher than one year ago, reported CNBC on Wednesday.

Since homes are typically Americans’ biggest purchase, many economists use the strength of the housing market to indicate whether or not the American consumer is buying, and, according to these numbers, the American consumer is buying big!

Analysts reported that record lower mortgage rates fueled the demand with the average interest rate for a 30-year fixed-rate mortgage decreasing to 3.30% from 3.38%. Lower rates also fueled demand for refinancing with refinance applications raising 10% for the week, 106% higher than a year ago.

Apple Closes Stores in States Seeing Virus Resurgence

The markets sold off substantially on Friday when Apple (AAPL) announced it would be closing 11 stores in Florida, North Carolina, South Carolina, and Arizona due to a resurgence in COVID-19 cases, reported CNBC.

Apple released a statement noting “we take this step with an abundance of caution as we closely monitor the situation and we look forward to having our teams and customers back as soon as possible.”

Apple’s reopening procedures included such safety measures as mandatory masking, temperature checks, curb-side pickup, and service by appointment.

While the announcement impacted the markets as a whole, the brick-and-mortar retail sector got slammed, specifically.

Next Week’s Gameplan

The market’s feeling a bit edgy and skittish after last week’s -7.5% selloff in a single day. While there still seems to be a ton of FOMO money pouring into the markets, the direction will continue to be determined by COVID-19.

While I am always long in the markets, I continued to take profits during this week’s rallies as I believe the stock market is ahead of itself, seeing a V-shaped recovery well before we have any real data on the economy to see that as so.

I’m still in no hurry to put money to work at these levels, preferring to trim from my current positions when they reach new highs.

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

Following last week’s pullback from Bitcoin’s new $10,428.00 monthly high, the cryptocurrency retreated further this week, breaking through the weekly low on Monday before finding support at $8,895.01.

The Bullish Case

Bulls continue to speak of Bitcoin’s potential invulnerability to inflation, pointing to the U.S. Federal Reserve Bank’s approach to backstopping the stock markets with limitless money-printing as a reason Bitcoin will never drop precipitously. Bulls believe the $8895.01 low will hold and the next move is higher as more investors experience FOMO and rush to crypto once again.

The Bearish Case

Bears point to the break in last week’s low as a sign the rally is over. In traditional Technical Analysis, a lower weekly high and a lower weekly low is indicative of a potential selloff, so the bears might have an edge on this. If the $8900 mark doesn’t hold, Bitcoin could see a test of the Line That Shall Not Be Crossed around $8500 followed by the Next Support of Last Resort around $6900.

Bitcoin Gameplan

Current Allocation: 1.110%
Current Per-Coin Price: $9,503.12
Current Status: -2.05%

I added a little bit to my allocation during Monday’s selloff, with my first buy filling around $9100 and my second buy targeting too low a level to get filled. The small buy lowered my per-coin price marginally -0.94% from $9593.18 to $9503.12.

From here, I’ll continue to add starting at the weekly low with targets proceeding down from there.

Bitcoin Buying Targets

Using Moving Averages and supporting trend-lines as guides, here’s my plan of buying quantities and prices:

0.444% @ $8967
0.444% @ $8657
0.666% @ $8289
0.888% @ $7977
1.331% @ $7016
1.775% @ $6658
2.219% @ $5909
3.853% @ $5140
5.678% @ $4581
7.035% @ $4106

Bitcoin Selling Targets

For the moment,  I have no upside selling targets, instead preferring to use stop-losses to lock in gains when Bitcoin begins price consolidation and then reopening the position at lower levels if the stop-loss is triggered.

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 +170.30% to $10,428.00 in June.
• 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.