Summing Up The Week

While the markets were distracted for a moment on Monday night after a senior advisor to the president claimed the China Trade deal “was over,” the miscommunication was resolved and the markets refocused their attention on coronavirus news.

And, the news on COVID-19 is anything but good. 

Read on to learn the news that moved the markets this week…

Market News

COVID-19 Craziness Takes over the Weekend

Germany’s coronavirus reproduction rate (R-number) leapt over the containment level last Sunday, reported CNBC. The R-number indicates how many people will become infected from each new case of a virus, and the optimal number for containment is less than 1.

On Sunday, Germany reported its R-number jumped from 1.79 on Saturday to 2.88 in one day. Despite being considered the European Union’s success story, the rising infections were bad news from Germany.

In the meantime, Brazil’s case crossed 1 million and deaths reached 50,000, reported International Business Time. Despite a population only 2/3 the size of the U.S. – the worst-hit country in the world – Brazil has overtaken the #2 spot.

Rounding out the COVID bad news happened when the U.S. reported 30,000 new coronavirus cases in a single day, the highest since May 1, reported CNBC.

And that was just the news heading into the week…

Oddly, the markets opened relatively flat on Monday, seemingly not reacting to the negative COVID news. Don’t worry, though, because, on Monday, Larry Kudlow, the White House economic advisor, said that a second wave of coronavirus cases isn’t coming, reported CNBC.

Last time I checked, economic advisors don’t receive a whole lot of medical training so I’m still confused why Kudlow continues to make comments on health issues…

We’ve seen this movie before earlier this year: initially, the markets didn’t react to coronavirus spread in January and February with Kudlow and President Donald Trump playing down both the severity of the virus’s mortality and its ability to spread.

The markets ignored the virus news until they didn’t – suddenly taking the virus news very seriously and pulling back a total of -35% in the S&P 500 in March.

Will the same thing happen with this new “not-a-second-wave” of covid cases rolling in from across the U.S.? Time will tell.

“Trade Deal is Over!” Wait… No, it’s Not??

The market was shaken up in both directions Monday night after White House trade advisor Peter Navarro said the China trade deal is ‘over’ in an interview with FOX News. Then, later the same evening, Navarro denied ever saying that the deal was over, claiming that his comments were taken “wildly out of context,” reported CNBC.

Later that evening, President Donald Trump tweeted that the deal is not over, confirming Navarro’s back-tracking. 

The market futures sold off dramatically on the initial news that Navarro said the deal was over. However, when the matter was cleared up, rather than going flat, the futures spiked with the Dow predicting a 300-point jump on Tuesday trading.

Are People Playing Stocks instead of Netflix & Chilling?

The volatility in the markets has skyrocketed since the beginning the pandemic. While, historically, increased volatility is normal during a recession, the levels of volatility we’re seeing now are unprecedented, leading some analysts to suggest that retail investors are playing the stock market for “entertainment,” according to behavior finance experts like those at Betterment, reported CNBC.

Without sports or other forms of entertainment to watch and the recent change of major brokerages removing trading commissions, many analysts agree with Betterment. Robinhood, the free trading app popular with millenials, has seen a dramatic upsurge in new accounts as have the other major brokerages including Fidelity Investments, Schwab, and others.

Some even suggest that new investors are using their $1,200 stimulus checks to gamble on the stock market since legalized gambling on sports has flat-lined due to the pandemic shutting down the NBA, MLB, and, potentially, the NFL.

U.S. 7-Day Average of COVID-19 Surges 30%

The markets finally woke up to how bad the situation with coronavirus had gotten when, on Wednesday, John Hopkins University released data showing new COVID-19 cases increased more than 30% compared with a week ago, reported CNBC.

California, in particular, saw a jump on Monday of 6,219 new cases, and Texas has an average of 3,110 people hospitalized with the disease (and that figure is rising). The trend continued mid-week as Florida confirmed a record 5,508 new cases for Tuesday alone.

In response, some states, including New York, New Jersey, and Connecticut, ordered visitors from hotspot states to quarantine for 14 days.

Wednesday evening brought worse news with the U.S. hitting its highest single day of new coronavirus cases at more than 45,500, reported CNBC.

To further exacerbate the situation, on Wednesday, the WHO said on Wednesday that coronavirus outbreak in the Americas still hasn’t reached its peak, yet, with the U.S. included in the Americas, reported CNBC.

On Thursday, the news became more heated as New York Governor Andrew Cuomo told other states “you played politics with this virus and you lost” as three New England states required visitors from hotspots to quarantine, reported CNBC. “It was never politics, it was science,” said Cuomo.

As of Thursday evening, a total of 27 states saw dramatic increases of COVID-19 cases, many of these states claimed that the virus was “Democratic hyperbole,” according to Cuomo.

IMF Reports More Dire 2020 Economic Forecast

The COVID-19 news in combination with woeful economic forecasts for global growth from the International Monetary Fund (IMF) caused the markets to sell off on Wednesday.

The IMF forecasted a contraction of -4.9% in global gross domestic product (GDP) for 2020, lower than the -3% fall it predicted initially in April, reported CNBC. The organization also indicated that “the recovery is expected to be more gradual than previously forecast.”

In addition, the IMF downgraded 2021 GDP, now expecting +5.4% versus the +5.8% gain it had initially predicted.

Jobless Claims Total 1.48M vs. 1.35M Estimate

Weekly jobless claims totaled 1.48 million last week against economists’ expectations of 1.35 million, reported CNBC on Thursday.

While continuing claims fell by 767,000 to take the number of Americans receiving unemployment to 19.52 million, under 20 million for the first time in several weeks, the continuing claims figure is notoriously unreliable.

While some analysts point to it as a sign Americans are headed back to work, in reality, some Americans may have run out of unemployment benefits or chosen to stop taking unemployment, remaining unemployed but no longer being counted.

The disappointing numbers combined with COVID news to continue Wednesday’s selloff on Thursday.

Mortgage Bailouts Swell with New COVID Cases

The number of active mortgage forbearance plans rose by 79,000 in the past week, reported CNBC on Friday, an indication that the American consumer is continuing to feel economic pain due to the pandemic closure.

As of Tuesday, 4.68 million homeowners were in forbearance plans which allows them to delay their mortgage payments for at least three months.

Up until this week’s report, the number of active plans had been decreasing and was seen as a sign of improvement since the peak of May 22. This week’s report eliminates about half of the improvement seen since the peak.

The increase in homeowners taking advantage of forbearance plans could be a sign of weakness for the overall health of the economy.

Next Week’s Gameplan

While we are seeing small pullbacks in the market here and there, these moves aren’t dramatic enough to motivate me to put money to work other than in my ETF retirement accounts where regular contributions need to be put on in percentage-based increments. My my Investments in Play portfolio remains stagnant until we see a pullback significant enough to create opportunity.

Despite the small pullbacks, I think the market is still incredibly frothy with tons of new money being thrown on the fire from international investors and the myriad of new and inexperienced retail traders, both feeling FOMO over the missing the market’s bottom in March.

I remain cautious, preferring to take profits in high-flying names rather than adding to any of my positions at current levels. It’s a waiting game until we see the markets pull back more dramatically from these levels.

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

Bitcoin may have seen a return to volatility this week when it broke a multi-week price consolidation to the Bullish upside hitting a high of $9792.00 (the hashed green line in the chart) before losing all momentum and crashing to $8979.07 (the hashed yellow line in the chart).

Bitcoin made it above the Support of Last Resort trendline (now resistance rather than support) briefly only to lose momentum and crash back toward the Line That Shall Not Be Crossed trendline which now provides support. I guess the fact that support and resistance lines will swap sides means I should have come up with better names, eh?

The monthly high of $10,428.00 and monthly low of $8,895.01 have both held, at least for the moment, however this week’s return to volatility (a nearly 10% price swing from the high to the low) may be an indication that July could be exciting.

The Bullish Case

Bulls point to the combination of the multi-week consolidation breaking bullish and the holding of June’s $8,895.01 low as a sign that Bitcoin could be headed for new highs.

The Bearish Case

Bears point to the failure of the rally as a “Bull Trap” meaning the price action enticed Bulls to add to their positions only to lose money as the crypto retreated. From here, Bitcoin could potentially try to test the Line That Shall Not Be Crossed around $8300-8500. If that point doesn’t hold, we’re looking at even lower-lows with the Next Support of Last Resort (?) around $6800-7000 followed by Some Support of Any Resort way down at $4000-4200.

Bitcoin Gameplan

Current Allocation: 1.110%
Current Per-Coin Price: $9,503.12
Current Status: -3.63%

Once again, Bitcoin pulled back and narrowly missed my buy target, hitting a low of $8979.07 with my next buy at $8967. Accordingly, my position remains unchanged and I have altered my buying targets as we head into a new period of volatility (see below).

Bitcoin Buying Targets

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

0.222% @ $9006
0.222% @ $8752
0.444% @ $8239
0.444% @ $8017
0.444% @ $7457
0.444% @ $7056
0.666% @ $6612
1.148% @ $5977
1.003% @ $5693
1.918% @ $5202

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.