Summing Up The Week
From oil to GDP to Uber and everything in-between, it was quite a week! Let’s take a look at the news that moved the markets this week…
Does Good News for GDP equal Bad News from The Fed?
The U.S. economy grew at 3.2% over the first quarter which beat the pants off analysts expecting it to only grow at 2.5%, reported CNBC on Friday.
Although it’s certainly good news that U.S. Gross Domestic Product (GDP) is up, the surprising number has some concerned that the Federal Reserve may see this growth as a potential cause of inflation and raise interest rates.
The stock market is just filled with pessimists, isn’t it?
Do You Share Rides? Uber IPO is coming…
Uber (UBER), the prolific, gigantic, uber-popular Initial Public Offering (IPO) everyone has been clamoring for announced its market cap and price range on Friday, according to CNBC.
The company plans to raise around $10 billion during its IPO with a price range of $44 to $50 per share which would value Uber as a company at $83.8 billion.
Although a very different company to its competitor Lyft (LYFT) which only offers ride-sharing in the U.S. compared to Uber’s world-wide model and other service streams Uber Eats and Uber Freight, we’re not touching this one after Lyft’s IPO.
As of this writing, Lyft is priced at $56.20 per share, down -28% from its $72 IPO price and down a whopping -36.6% from its all-time high of $88.60 set in its first few hours of trading on March 29 – never to be seen again.
In case you were wondering, no, that’s not how IPOs are supposed to move. Ugh.
Given that both these companies are betting that everyone is dying to get rid of their cars (we like ours, thank you very much), we just feel the sky-high valuations are completely misplaced and the business models make no sense.
No touchy. We’ll grab the popcorn and watch from the sidelines, thanks.
Small Cap Underperformance = Recession?
The Russell 2000 (RUT) – the index that tracks the small-cap sector – has underperformed the market over the past two months, leading to research firm Ned Davis Research to point out that underperformance of small-caps can be a recession warning, reported CNBC on Thursday.
However, the firm also stated that they intend to wait for confirmation of a broader market peak before confirming the forecast Historically, recessions occur between 12-18 months following an inverted yield curve which first happened a few weeks ago, so analysts are also saying that should a recession might be on its way, they don’t expect it to arrive until 2020.
To make matters even muddier, some studies show that fear of a recession may actually cause a recession in reality as investors pull their money out of the markets to protect their investments, causing the equities markets to fall and cascading those effects outward.
Man, predicting the future can be fun, eh?
S&P 500 and Nasdaq break record highs
Both the S&P 500 and Nasdaq indexes rallied to close at record highs thanks to strong earnings reports from companies, reported CNBC on Tuesday.
Making record highs often leave many investors feeling a great deal of uncertainty – does this mean the market is heading higher or does this mean we’re in for a pullback?
As always, remember to develop a trading plan in advance so you can be prepared to take action without having emotion get in the way.
Trump to Eliminate Iranian Oil Sanction Waivers
The Trump administration intends to stop allowing countries to import Iranian crude oil, reported CNBC first thing Monday morning. Although waivers were granted to several countries in November 2018 when the administration first restored sanctions, Trump now seeks to have those waivers eliminated.
Naturally, oil prices spiked on the news causing related stocks and ETFs (such as Vanguard’s Energy ETF – VDE) to see a bump in price.
Next Week’s Gameplan
Given the markets’ seemingly inexhaustible move higher, we have buying levels set at -2.5%, -5%, -10%, -15%, -20% and so on for our ETFs with varying buying levels set for each of our individual positions, starting small and then putting more capital to work at each lower price drop.
Naturally, we’re only going to barely dip our toe in the markets up to the -10% mark as the S&P 500 and Nasdaq hit all-time highs this week, putting very small amounts of capital to work.
These levels are far too vaulted for us to start big positions, but we also don’t want to miss out on some of the gains should the markets just continue grinding higher (which they certainly have been known to do from time-to-time).
Want to learn more about Buying in Stages? Check out our feature.
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Bitcoin Price (in USD)
Bitcoin Price Action
Bitcoin tried to grind higher this past week as we approach the end of April, hitting a new high of $5,650.01 only to get slapped Thursday, pulling back to a low of $4,963.00.
Although making these kinds of highs is definitely a positive sign for the space, the past three months of nonstop upside action makes us powerfully aware that a historically-predictable 30-50% downside move is likely on its way in the very near future, maybe as soon as sometime between now and mid-May.
Bitcoin is still nursing its wounds from Thursday’s bear smackdown, currently (at the time of writing) at $5150.00, down -8.85% from its $5650.01 high earlier this week, and down -2.56% from last week’s $5285.22 price.
Crypto in the News
NY Times Asks: “Bitcoin – Is it Tulips or Twilio (TWLO)?”
Although more opinion than analysis, the New York Times released a feature this week entitled “After the Bust, Are Bitcoins More Like Tulip Mania or the Internet?“
The story delves into questions about how Bitcoin is currently being used including legitimate commerce as well as speculation on how much crime is supported by crypto usage.
The NY Times also discusses of how the oppressed – such as those suffering from economic collapse in Venezuela – are using Bitcoin and other cryptocurrencies to stabilize their long-term savings by converting their money into crypto assets.
The most powerful takeaway may be the closing statement of the piece: “with the serious money still finding its way into the [crypto] market, it is far too early to write the whole thing off.”
With an asset class as volatile as cryptocurrency, big upside moves that grind higher can certainly make speculators feel as though they’ve missed the next bull market.
However, especially with Bitcoin (BTCUSD), nothing could be farther than the truth.
Although Bitcoin and its friends can move 20% in a day and then grind higher, it’s important to take a step back to the longer time-frames. Bitcoin has been on an upward trajectory for the past three months.
Never in its entire history has Bitcoin moved like this without pulling back 30-50%. Although this time could be different, there’s no reason and no catalyst to make us believe this time will be different.
As difficult as it can be to sit on the sidelines, we’re rapidly approaching the end of the month of April, and our plan is to wait for a downside move before reassessing whether the current move truly marks the end of the Bitcoin Bear Market.
From its recent high of $5,650.01, a 30-50% pullback gives us price levels from $3,955.01 to as low as $2,825.01. We’re not revising our current course of action until mid-May, at the earliest.
Some crazies analysts predict the next Bull Market could take Bitcoin as high as $50,000 or even $100,000 per coin. As a speculator, if you truly believe these price targets, then patiently waiting for Bitcoin to confirm the bull move by holding above $6,800 – a key resistance/support level – is the only prudent decision.
Missing slightly more than 25% of upside can seem painful, however with a nearly 1400% gain (the move from $6800 to $100,000) in the forecast, 25% is a drop in the bucket.
Flip the (bit)coin, look at the big picture, and avoiding a potential 30%-50% pullback is the more appropriate risk-adverse course of action.