Summing Up The Week

Even with a shortened trading week thanks to Independence Day, the markets kicked off the week in a big way as COVID-19 news flooded in over the weekend thanks to another record number of new cases on Friday.

Despite the negative numbers, the markets continued to surge, closing out the best quarter in the markets since 1987 (that’s more than 30 years) leading to a debate among pundits whether we’re seeing a repeat of the dot-com bust in 2000 or the recovery of the market following the Great Recession in 2008.

Later in the week, jobs reports that absolutely blew away expectations caused the markets to fly into the Fourth of July weekend.

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

Market News

“We Have to Act” – HHS Secretary Warns of COVID Spike

On Sunday, Health and Human Services Secretary Alex Azar warned that time was running out for the United States to curb the spread of coronavirus across the country, reported CNBC.

States reopening their economies too soon combined with many in the population unwilling to wear masks has dramatically increased the virus’ spread in many states, particularly Texas, Arizona, Florida, California and Nevada.

“As a doctor, a scientist, and epidemiologist, I can tell you with 100% certainty that in most states where you’re seeing an increase, it is a real increase,” said former CDC Director Tom Frieden on Fox News Sunday in response to President Donald Trump’s and Vice President Mike Pence’s claims the new cases are due to increased testing capacity. “It is not more tests, it is more spread of the virus.”

The record-high spike of 45,255 additional COVID cases on Friday alone brought the total number of cases to 2.5 million across the country. While many states assure citizens they will not reclose their economies, the majority are putting a pause on further phased reopenings.

In addition, with companies like Apple (AAPL), Microsoft (MSFT), and Starbucks (SBUX) closing stores to protect staff and patrons, whether states’ economies are “open” might make little to no difference if stores aren’t operating either way.

Pending Home Sales Spike a Record 44.3% in May

Against all expectations, the National Association of Realtors reported that pending home sales spiked 44.3% in May over April, smashing expectations of a 15% rise, reported CNBC on Monday. Year-over-year, however, sales were 5.1% lower than those in May 2019.

Economists point to mortgage rates near 3.2% helping buyers stay in a market that remains expensive due to the high demand for residential real estate. “Emerging virus hot spots in the South and West could derail the improving trend,” warned Danielle Hale, chief economist for realtor.com. “For now, demand remains resilient, but we’re watching the new listings trend as an indicator of what’s ahead for home sales.”

Powell: “Recovery is Extraordinarily Uncertain”

Federal Reserve Chairman Jerome Powell warned Congress that “the path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” CNBC reported on Tuesday.

Powell pointed to the spike in new coronavirus cases with concern, explaining that a recovery of the country depends nearly entirely on the U.S.’s ability to control the spread of the virus in light of relaxed restrictions.

“Many businesses are opening their doors, hiring is picking up, and spending is increasing,” he said. “While this bounceback in economic activity, it also presents new challenges – notably, the need to keep the virus in check.”

A Second Pandemic?! Swine Flu II: The Sequel!

Scientists identified a new strain of flu carried by pigs in China which they say has the potential to become a pandemic, reported CNBC on Tuesday.

The new strain, called “G4 EA H1N1,” is a variation of the original swine flu, however, this one includes the “G4” genotype making current vaccines against H1N1 of relatively little to no defense.

The combination of the mutation of a potentially higher infectivity rate caused China’s Center for Disease Control and Prevention to warn the new H1N1 variant has all the hallmarks of a pandemic virus. “Controlling the prevailing G4 EA H1N1 viruses in pigs and closely monitoring human populations, especially the workers in swine industry, should be urgently implemented,” they wrote.

Scentists did stress the virus is not an immediate problem, however Professor Kin-Chow Chang who works at Nottingham University in the U.K. said, “While this virus is not an immediate problem… we should not ignore it.”

During his testimony before Congress, Dr. Anthony Fauci described the new H1N1 virus variant as having the combined traits of 2009 swine flu with 1918 pandemic flu, reported CNBC later on Tuesday. 

June Private Payrolls Rose 2.37 Million

ADP reported private payrolls rose 2.37 million in June, slightly lower than the expected 2.5 million, reported CNBC on Wednesday. The activity represented a decline from May which saw a revision to its data to a gain of 3.065 million where ADP initially said May saw a loss of 2.76 million. The increase in hiring activity led to a surge in the markets.

4.8M Jobs Added in June, Unemployment Falls to 11.1%

Nonfarm payrolls rose by 4.8 million in June, positively destroying the expected 2.9 million increase, reported CNBC on Friday.

The Department of Labor report also showed that the unemployment rate in June dropped to 11.1%, better than the expected jobless rate of 12.4% economists surveyed by Dow Jones had predicted. The June total represents the largest single-month gain in jobs in U.S. history.

However, it’s worth noting that since the survey is administered mid-month, the figures do not account for states which paused or rolled back their economic reopening plans as the increase in coronavirus cases came later in the month.

The markets skyrocketed following the report.

Next Week’s Gameplan

With reports of a potential second pandemic on the way and a continued rise in COVID-19 cases, the future certainly is uncertain. Accordingly, I’m keeping a large minority position in cash on the sidelines as we wait to see what the future holds.

I don’t anticipate a pullback in the markets as severe as what we saw in March, however, 7-10% pullbacks aren’t just healthy, but common. In fact, just a few weeks ago, we saw a -7.5% pullback in a single day (whether that could be described as “healthy” is another matter entirely, of course).

At any rate, I hope everyone has a very happy and safe Fourth of July! Stay safe, stay healthy, and take care of one another!

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 remained somewhat calm this week, although it did break its weekly low over the weekend before finding support slightly lower at $8815.01. The weekly high of $9792.00 set last week remains intact.

This period of price consolidation since The Halvening (yes, Halving) on May 12 continues leading many to point to Bitcoin’s history and suggest a period of extreme volatility… either bullish or bearish… is almost certainly on the way.

The Bullish Case

Bulls argue that Bitcoin finding support so close below the previous weekly low at $8815.01 is a good sign, indicating buying pressure that will lead to the cryptocurrency making higher highs through the second half of 2020.

The Bearish Case

Bears point to Bitcoin’s loss of the weekly low as a test of selling pressure with its subsequent price consolidation and lack of bullish momentum as a sign that the cryptocurrency will test The Line That Shall Not Be Crossed around $8300-8400, potentially dropping to lower support in the $6000-7000 range.

Bitcoin Gameplan

Current Allocation: 1.298%
Current Per-Coin Price: $9,435.72
Current Status: -2.643%

I added to my position during the weekend selloff, lowering my per-coin cost a negligible -0.71% from $9503.12 to $9435.72 and increasing my allocation to 1.298%. Once again, my second buying target was too bearish, predicting a drop to $8752 where support was found at $8815.01, a 0.71% difference.

This week, I feel that if we see a break in consolidation, it will be significant, so my first buy target is actually below the Line That Shall Not Be Crossed as Bitcoin has a tendency to break through the line before finding support.

Bitcoin Buying Targets

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

0.433% @ $8203
0.433% @ $7938
0.649% @ $7457
0.865% @ $7120
1.082% @ $6676
1.298% @ $6027
1.514% @ $5676
1.731% @ $5246
4.086% @ $4676
4.751% @ $4217

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.