Trade The Journey

Trade The Journey

Reflection

Top of the morning! I hope everyone is doing well and enjoying their weekend. I’m spending this weekend watching the NFL playoffs. So far, the games have been good, and I am awaiting the Rams versus Buccaneers matchup later today. Hopefully, Matthew Stafford shows up during the playoffs.

Indices

Russell 2000: The Russell fell 8.04%.

S&P 500: The S&P fell close to 7%

Dow Jones: The dow fell 5.63%

Nasdaq: The Nasdaq fell 8.3%

The markets spent the week in a free-fall, breaking through support levels and closing on lows this past week. All of the indices closed below their fifty and two-hundred moving averages. Each day of the week, the market closed lower and lower as participants exited their positions.

Bitcoin broke below the $40,000 level for the first time in months, which sent most cryptocurrencies to their lows. This past week my crypto account lost close to half of its value.

Most companies reported mixed reports on the earnings front, although 70% of the companies that have reported thus far topped earnings estimates. With rates set to rise, increasing labor costs, and supply chain concerns at the forefront, it’s hard to say how long companies will be able to maintain their margins.

Peleton and Netflix, synonymous with the Pandemic lockdowns, are having a hard time recovering. Peleton is cutting production, and Netflix is seeing a slow-down in membership. Morgan Stanley, American Airlines, JB Hunt, and Bank of America beat their earnings estimates but fell alongside the rest of the market.

Building Permits and Housing starts at their highest in months, but there was a notable decrease in single-family units. Tighter supply and rising rates are pricing out potential homeowners. Mortgage rates reached levels not seen since the pre-pandemic.

There are also ongoing inflation concerns and how the Fed will manage its policies to halt the increasing inflation. Some say that the Fed is behind the curve and should have tightened sooner, making the mistake of labeling inflation as transitory.

While most central banks are looking to tighten their policies, China is loosening, trying to spur some economic activity. China’s zero-tolerance stance on Covid and the real estate market continues to cause challenges to China’s economy.

Bonds

Yields pulled back from their highs, as some buyers did enter the market towards the end of the week.

Five-year yield: 1.54%

Ten-year yield: 1.74%

Thirty-year yield: 2.06%

The 2% level is significant for the ten-year to breakthrough. On the thirty-year yield chart, the twenty periods moving average crossed the fifty and is on its way to crossing the two-hundred moving average. The forecasted rate increases have helped the dollar recover, but the dollar faces some resistance above the $95.8 level.

The yield curve is steepening, but I wonder when and if the curve will begin to flatten and invert. There is a big chance that the Fed will hike above the twenty-five basis points in March.


Technical Story:

Usually, I separate the indices and sectors, analyzing the levels or areas the indices may reach, but in this market, it’s hard to call. For the past year, buying the dip has been a profitable strategy, but now the strategy’s success could be in question. There’s no sign that yields will slow their upward ascent, and that will weigh heavily on the market moving forward.

Consumer Staples and Utilities were able the only two sectors that didn’t fall through their moving averages.

The coronavirus will remain a significant concern for the world moving forward, although doctors say the Omicron variant is reaching a peak. With each new variant comes supply chain, health, and production challenges causing businesses/companies to reinstate Covid protections for the workplace.

With the Russell being one of many barometers for risk-taking by investors, finally breaking through its year-long support level, the chances of this historic bull run continuing is questionable.

This could be the market taking a break from rising to its all-time high or the signs of something more serious, a bear market. Looking at the market as a whole, I think the chances of a full-on recovery and continuation of new market highs are slim.

Now I think it’s more important for investors and traders to be cautious and remain calm.

Russell 2000

S&P 500

Dow Jones

Nasdaq


Anything can and will happen!

This statement is primarily for active investors and traders. A couple of weeks ago, I spoke to my cousin about his investments in Bitcoin. He’s excited, understandably, about Bitcoin’s prospects and sees it as the one investment that will propel him and his family into generational wealth.

As we talked, I could see that he was knowledgeable about Bitcoin and its potential use but not so much in its functionality. During Bitcoin’s epic run, almost everyone was a winner in the crypto space, and you made money if you took the risk. My cousin and I went back and forth about Bitcoin and the cryptocurrency environment.

He was adamant that Bitcoin is the only investment to make, while I was adamant that Bitcoin was one of many investments in the crypto space. We also differed in opinion on how an investment should be managed, me believing the charts were key and him thinking that Bitcoin is a long-term investment not to be touched.

To be clear, I haven’t touched any of the money I have invested in Bitcoin, so I agree with him in that aspect; however, I also believe investing isn’t a set it and forget it procedure. “There are no free lunches,” I proclaimed during our discussion. Investments like trades have to be managed and watched, especially a volatile asset like Bitcoin.

The Federal Reserve released its Central Bank Digital Coin report this past week. As I read through the report, it became evident that Central Bank will at some point release a digital coin. The report stated: The use of physical currency continues to drop as consumers move to a more digital form of money. At stake in this new form of war between China and the United States is the status of the predominant currency of the world. The United States enjoys many economic advantages due to its currency status around the world and with the rise of China, that status is now in question in the future.

You can find the paper here:

https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm

Some of the concerns of the Central Bank regarding a digital coin are well-founded, and it may take some time before they can safely implement a digital currency without affecting banks and the economy as a whole.

With that being said, Central Banks will have to set some regulations for cryptocurrency trading and investing, especially involving stablecoins. While some governments around the world celebrate the new form of currency, others are banning its use and mining.

China is cracking down as it readies its release of its own Central Bank Digital Coin. Russia is also attempting to follow suit in banning Crypto trading and mining.

I wasn’t trying to stop my cousin from investing in Bitcoin nor damper his enthusiasm but to warn him that no investment keeps rising forever without challenges and that anything can happen.

Will cryptocurrency be around in the next ten to fifteen years?

Yes, but its path to mainstream acceptance will be challenging in the years to come.


This past week’s cash-flow report:

This past week presented some cash-flow challenges from the start of the week. I had to replace the tires on my vehicle and repay the dentist for a procedure my insurance would not cover. I was not prepared for such significant cash outflows.

Luckily, I won some money at a casino, and it helped to pay for some of my expenses. Although I can’t expect such an unanticipated event to occur in the future, I am happy that it did. The previous week I didn’t work at all due to my supervisor’s Covid infection.

Although I’ve built up quite a nest egg, I never withdraw money from my investment accounts unless I absolutely have to. With my savings account, I am usually able to weather large short-term cash outflows.

Unfortunately, I have to sacrifice a few pleasures to build up my savings accounts but in the end, I am always glad I did.

This coming week, I’ll be able to recoup some of my expenses as my work schedule returns to normal. Hopefully, Covid infections don’t sprout up at the office again but unfortunately, I have to accept an irregular work schedule as the new normal.

Money Never Sleeps

 

Grade: D+

Reason: Unprepared.

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