Summing Up The Week

The markets remained relatively flat for the majority of the week until Thursday when COVID-19 coronavirus news caused a turnaround in market sentiment. Add to COVID a variety of negative economic indicators, and July could prove to be a volatile month.

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

Market News

Commercial Mortgage Delinquencies Surge in June

The rate of delinquencies in commercial mortgage-backed securities jumped to a record 3.59% from 1.46%, reported CNBC on Monday. The increased rate is the largest one-month spike since the Fitch Ratings agency began tracking it nearly 16 years ago.

Among the worst offenders not paying their mortgages are hotel and retail sectors, most likely since the coronavirus has hit those industries particularly hard.

While this news story had absolutely no effect on the markets (they rallied once again on Monday), I’ve been keeping my eye on the commercial real estate market as I think a crash in that market, in particular, is very, very possible as companies discover they don’t need nearly the office space they thought previously to the pandemic. In the meantime, residential real estate is back in a big way.

WHO says COVID-19 Deaths Could Rise

On Tuesday, the World Health Organization (WHO) warned that coronavirus deaths could start to rise again in a few weeks and shouldn’t ‘be a surprise,’ reported CNBC.

While many may have been trying to find comfort that the mortality rate seemed to remain low despite the dramatic spikes in COVID-19 cases, Dr. Mike Ryan, executive director of the WHO’s emergencies program, warned about the lag time between rising cases and rising deaths as it typically takes weeks after contracting the virus for someone to fall seriously ill and potentially die.

“Some of this may be lag, we may see deaths start to climb again because we’ve only really experienced this rapid increase in cases over the last five to six weeks,” said Ryan. “I don’t think it should be a surprise if the deaths start to rise again; it will be very unfortunate but it may happen.”

Herd Immunity Strategies may Prove Unsuccessful

Countries like Sweden and Spain attempted to achieve herd immunity rather than enter full lockdown in hopes that enough of the population with antibodies to fight off COVID-19 would prevent its spread. On Tuesday, a new study claimed that the antibodies in Spain’s population “are insufficient to provide herd immunity,” reported CNBC.

The peer-reviewed paper published in the Lancet medical journal was the result of a team of researchers from Harvard, the Massachusettes Institute of Technology (MIT) and several Spanish institutions.

“Despite the high impact of Covid-19 in Spain, prevalence estimates remain low and are clearly insufficient to provide herd immunity,” the report said. “This cannot be achieved without accepting the collateral damage of many deaths in the susceptible population and overburdening of health systems.”

The authors went on to recommend social distancing measures and efforts to reduce virus outbreak hotspots. Many experts warn that herd immunity may never happen give that immunity to COVID-19 is not guaranteed after infection or may last a short while, if at all.

Home Mortgage Demand Spikes 33% More Than 2019

Mortgage applications to purchase a home were 33% higher than a year ago according to the Mortgage Bankers Association’s index, reported CNBC on Wednesday. Buyer demand has remained strong since mid-May with the only negative to the home market being the record low supply of homes for sale.

While homebuyer activity reassures some economists, others point to the historically-low interest rates for 30-year mortgages as the catalyst for purchases, not that confidence in the economy leads to homebuying. “Mortgage rates declined to another record low as renewed fears of a coronavirus resurgence offset the impacts from a week of mostly positive economic data such as June factory orders and payroll employment,” said Joel Kan, an MBA economist.

Job Losses Total 2.3M Last Week – 16th in a Row 1M+

Thursday’s unemployment report indicated that an additional 2.3 million new applicants filed for benefits last week, making it the 16th week in a row with more than one million new unemployed Americans, reported CNBC.

While the situation has improved since new claims peaked in late March, spiking coronavirus infections and expiring federal aid could lead to an increase in layoffs and further weakening of the economy.

WHO and Fauci Warn Coronavirus is “Getting Worse”

On Thursday, the markets were hit with a double-punch of negative coronavirus news when both the World Health Organization (WHO) and Dr. Anthony Fauci warned that spread of COVID-19 continues to acceleration and the possibility of states shutting back down is very real, reported CNBC.

“What we are seeing is exponential growth,” Fauci told the Wall Street Journal. “[Cases] went from an average of about 20,000 to 40,000 and 50,000 [per day]; that’s doubling and if you continue doubling, two times 50 is 100.”

WHO Director-General Tedros Adhanom Ghebreyesus warned, “the pandemic is still accelerating; the total number of cases has doubled in the last six weeks.”

Accordingly, the market rally fizzled throughout the day on Thursday and started to reverse on, however, the lack of a significant selloff continues to confound market analysts.

Next Week’s Gameplan

As negative news and volatility appears to have returned to the markets, I continue to eye my positions and adjust buying targets accordingly.

Make no mistake, if the market maintains its current strength, we’re still in Selling Season, however, given how rapidly the market whipsaws, lately, it pays to be prepared.

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 continues its price consolidation, maintaining its weekly low of $8815.01 set two weeks ago and not able to break its recently monthly high of $9792.00 made in June. As I mentioned last week, whenever Bitcoin has held a long-term price consolidation similar to this one in the past, the next move has been explosive.

The Bullish Case

Bulls continue to hold to the concept that Bitcoin has seen huge rallies following past Halvenings, going so far as to point out that Bitcoin typically sees a selloff before the rally. Some bullish analysts believe the ongoing weakness in global currencies will lead to adoption of cryptocurrency and the selloff won’t happen this time around.

The Bearish Case

Bears have history on their side in this scenario. The explosive move following a long price consolidation in Bitcoin has almost always been to the downside, and devilishly so. In the past, Bitcoin loses 50-85% of its value during such a selloff. If that happens again, we’re looking at lows around $4600 to a nauseatingly-evil drop to $1380.

Bitcoin Gameplan

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

Professional day-traders always say “Never Trade a Dull Market” and they’re right – the most dangerous thing to do when a market is flat and boring like Bitcoin has been for weeks now is to do anything at all.

Rather than trade in a frantic attempt to make profits, I find that during doldrums like these it’s best to just sit on my hands. When Bitcoin’s volatile, I often have my charts on a separate monitor all day. When Bitcoin’s dead like it is now, I find myself only checking in once or twice daily.

For the moment, the gameplan is simple – my next move is to wait for Bitcoin’s next move and go from there.

Bitcoin Buying Targets

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

0.433% @ $8407
0.649% @ $8156
0.866% @ $7716
1.082% @ $7237
1.298% @ $6906
1.515% @ $6762
1.731% @ $6117
1.948% @ $5686
2.164% @ $5327
5.540% @ $4737

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.