Novum Digital Asset Alpha – Daily Analysis 1 July 2020 (8-Minute Read)

Happy July! We’re now officially in the second half of what has arguably been a year that the world would soon rather forget. 

If and when we get through the coronavirus pandemic, perhaps historians will view this period as the “after times.” 

But moving into midsummer means that the autumn flu season will be descending on us again, and that means that the coronavirus could round the bend bringing with it all sort of nasty surprises. 

For now at least, investors don’t seem to care as markets notched their best finish for the quarter since 1998! 

In brief (TL:DR)

  • U.S. stocks finished the first half of the year and the second quarter in style, with the blue-chip Dow Jones Industrial Average (+0.85%), the S&P 500 (+1.54%) and tech-heavy Nasdaq Composite (+1.87%) all racing ahead. 
  • Asian stocks look rose in the pre-lunch trading session, taking their cue from Wall Street and kicking off July with a bang.  
  • U.S. consumer confidence posted its biggest increase since 2011. 
  • U.S. 10-year Treasury Bills fell as yields rose to 0.653% from 0.636% a day earlier, as investors moved cautiously into risk assets (yields typically rise when prices fall). 
  • The dollar slipped against a basket of major currencies.  
  • Crude oil rose with WTI Crude Oil (Nymex) (+0.99%)  trading at US$39.66, on increasing optimism of re-opening in the U.S. and rising consumer confidence. 
  • Gold (Comex) (-0.01%) rose to a record US$1,800.30 as investors continued to look for hedges against inflation against a backdrop of unprecedented monetary policy intervention.  
  • Bitcoin (-0.92%) edged lower in overnight trading and sits at US$9,120 (GMT 0200) but continues to remain rangebound with pressure from miners selling on upside in the world’s firstborn cryptocurrency. 

In today’s issue…

  1. Boeing bombs, will global aviation ever recover? 
  2. The coronavirus pandemic is far from over, should we be worried? 
  3. Bitcoin Volatility Is Down – This Could Be A Precursor To Big Moves Ahead

Market Overview

Asian stocks were up at the open with Tokyo’s Nikkei 225 (+0.23%), Seoul’s KOSPI (+0.78%) and Sydney’s ASX 200 (+0.01%) all clocking what can only be termed “cautiously optimistic” gains while  Hong Kong was closed for a holiday.

Investors are continuing to weigh concerns over accelerating coronavirus infections in the United States (wear a mask already for goodness sake), against data suggesting economic recovery and renewed consumer confidence. 

Infectious diseases expert Anthony Fauci, has warned that new coronavirus infections could top 100,000 a day in the U.S., if behaviors don’t change. 

As we kick off the second half of 2020 and move into an election cycle, near term volatility has likely made day-traders of us all. 

Investors more accustomed to a long term “buy-and-hold” mentality may want to reconsider. 

Whereas under normal market conditions, it may be fine to look at portfolio re-balancing every 6 months, depending on what sort of investor you are, every 6 days or 6 hours may be more suitable in the current climate. 

And because so many companies have removed earnings guidance for this year, planning beyond the next few weeks will require reference to Magic Eight Balls and Tarot Cards. 

More than 180 companies in the S&P 500 have already withdrawn their earnings forecasts for 2020 according to FactSet, making it nearly impossible for investors to value stocks using traditional matrices of valuation. 

And that may not be a bad thing. 

Because when there are zero expectations, anything more than zero can be seen as a bonus and could send stocks rising further. 

Perhaps now would be a good time to place an order for those divination sticks you’ve been eyeing on Amazon (+2.93%).

1. Boeing bombs, will global aviation ever recover?

  • Shares of aircraft maker Boeing (-5.75%) have tanked 
  • Boeing 737 Max costs will likely surpass US$18 billion 
  • Organizational culture will need to change before this stock turns around

For what started off as an engineering company, Boeing has sacrificed too many sacred cows at the altar of the capitalist Gods. 

Whereas in the past, top management sat in Everett, Washington, working cheek-and-jowl with Boeing’s brightest engineers, its suits now sit in the windy city of Chicago, a whole timezone away. 

And that has been reflected not just in Boeing’s corporate culture, but its products as well. 

Instead of spending the money to build a revolutionary ground-up design for a single-aisle plane, the suits at Boeing thought that they could use sticky tape and ice cream sticks to strap on bigger engines to the Boeing 737, an airframe that is almost five decades old, and call it the 737 Max.

In what can only be described of as classic case of penny-wise, pound foolish, Boeing now estimates costs of US$4 billion for closing and now restarting the 737 production line and that the lost sales of the 737 Max will reach US$8.3 billion. 

Overall Being expects that the cost to produce the 737 Max will rise to US$6.3 billion in the years ahead – it would have been better off building a jet from scratch, with a modern airframe that could have been amortized over the next two decades. 

Instead, Boeing is now stuck in a Catch-22 situation – abandon the 737 Max program altogether and take a massive write-down at a time when air travel is being ground to a halt, and start a new single aisle program, or double down on a bad bet. 

Either ways, Boeing’s stock is likely to come under renewed pressure in the next few years. 

With the coronavirus pandemic still continuing to sweep across much of America’s South and Southwest, travel, for now at least, will continue to be largely domestic, with even the Europeans turning their backs on American arrivals. 

And sales of new aircraft, if and when they do pick up again, would likely be for single aisle workhorses like the Boeing 737 Max – for Boeing, the past few years have been a confluence of factors which have resulted in the perfect storm. 

Even when the flying public takes to the skies again, a full 40% of travelers have already indicated that they are unwilling to fly on the Boeing 737 Max. 

Which may mean back to the drawing board for Boeing, or increasing the lifespans of its existing Boeing 737-700, 800 and 900 series with incremental upgrades. 

Boeing’s fortunes of course reflect those of the wider aviation industry, which had seen record profitability in the past few years, but are now struggling with excess personnel, equipment and capacity. 

Until the end of the year at least, the outlook for global aviation looks murky and much will depend on the availability of a vaccine for the coronavirus – something which most health experts estimate would arrive at the earliest by the first quarter of 2021. 

That could spell more trouble for international airlines that have either small or non-existent domestic markets such as Singapore Airlines (+1.61%) and Cathay Pacific Airways (+0.27%). 

But soaring coronavirus cases across the United States has taken some wind from beneath the wings of American airlines, with Southwest Airlines (-2.45%), American Airlines (-1.88%), United Airlines (-1.87%) and Delta Airlines (-1.96%) all down yesterday. 

For investors wanting to bet on airlines, consolidation is one pathway to profits, but otherwise, expect choppy skies and consider giving the entire sector as a whole, a miss for now.

2. The coronavirus pandemic is far from over, should we be worried?

  • Until habits change, expect that the coronavirus pandemic will continue to sweep across the U.S. 
  • Gilead Science’s US$2,340 price tag for Remdesivir, a coronavirus treatment draws flak

The coronavirus pandemic is anything but over, should we be worried? Short answer – if you’re an American, very much so. 

We should be very concerned that the coronavirus pandemic is nowhere near to being under control. 

America’s top infectious-disease doctor, Anthony Fauci has not minced words and warns that new coronavirus cases can top “up to 100,000 a day,” unless people wear face masks and adopt social distancing. 

New infections are surging across California, Texas, Arizona and Florida and putting tremendous pressure on already stretched healthcare infrastructure in these states. 

Health experts are already warning that states will need to roll back some re-openings to combat the rising number of coronavirus cases and hospitalizations, or risk overwhelming current healthcare resources. 

A federal response is needed, but considering that U.S. President Donald Trump himself doesn’t subscribe to wearing a mask or social distancing, that is unlikely. 

Because not all state leaders recognize the dangers or the borderless nature of the coronavirus, the state-level response is likely to be an inconsistent patchwork of measures to stem the tide of infections, which will mean prolonged pain. 

And even when there is a glimmer of good news, such as the development of a treatment for the coronavirus, that medicine is bitter at best. 

The first thing to remember is that pharmaceutical companies are not in the business of healing, they’re in the business of making money. 

So it was no surprise that when Gilead Science’s (+3.19%) Remdesivir – a drug that can shorten recovery time for those severely ill with the coronavirus by as much as 31% – was approved for sale, the price tag was going to be high – US$2,340 per dose to be exact. 

And it gets even better. For patients with private insurance, the price tag for a dose of Remdesivir skyrockets to US$3,120. 

Nevermind that the federal taxpayer helped to fund the development of Gilead Science’s Remdesivir, the pharmaceutical giant is looking to make some serious money on their coronavirus treatment. 

With the Remdesivir treatments that Gilead Science has donated to the U.S. and other countries likely to run out in a week, the prices will apply to the life-saving drug from that point onwards. 

Whether or not investors agree with this sort of price-gouging, it does mean that Gilead Science’s stock price has a lot more ways to travel upwards. 

As the first in the race to develop a treatment for coronavirus, in this case, severe life-threatening cases, Redmesivir may still be seen as cheaper than trip to the ICU for most patients. 

With U.S. federal health officials already securing over 500,000 additional courses of Remdesivir that Gilead Sciences will start producing in July and the rapid rate of infection in the U.S., the demand is likely to spike through September, to ensure that hospitals get adequate supply and that means more money for the company, and good news for its shareholders. 

3. Bitcoin Volatility Is Down – Expect A Big Move Soon

  • Bitcoin continues trading rangebound between US$9,100 and US$9,200
  • US$9,000 continues to be level of support, US$9,200 a level of strong resistance 

Bitcoin has had a relatively short history compared to any other asset class, but one pattern that has been somewhat reliable is that when the proportion of Bitcoin that remains unmoved in over a year increases, it typically presages a big price movement in the cryptocurrency. 

According to blockchain data intelligence provider Glassnode, 61.59% of the total supply of Bitcoin has not moved (i.e. transferred between different wallet addresses) in over a year – the last time that happened was in 2016 and preceded Bitcoin’s bull run to US$20,000. 

Also approaching a new all-time high is the amount of Bitcoin that has not moved in over two years – approximately 44%. 

Glassnode suggests that investors in Bitcoin are in a “period of sustained hodling (sic)” feeding into the narrative that Bitcoin is a store of value. 

In the immediate term at least, there are few catalysts for a Bitcoin bull run, outside of another round of fiscal and monetary stimulus packages being announced by Washington towards the end of this month. 

Bitcoin miners as well as wallets tied to the US$3 billion PlusToken scam are continuing to put downside pressure on Bitcoin and until that selling pressure is relieved, Bitcoin can be expected to remain rangebound. 

Trading Bitcoin Today

Yesterday we suggested that trading for the next 24 hours, Bitcoin could be expected to bounce between US$9,050 and US$9,240 – in fact, Bitcoin stayed within a tighter range with the upper bounds not exceeding US$9,205. 

The long trade for Bitcoin we suggested yesterday was to wait till it ducked to US$9,080 and sell at US$9,200 with a stop loss at US$9,000 – this trade is still open, but in the money. Bitcoin currently trades at US$9,150 (GMT 0500) and profit can be taken at this level if so desired. 

Yesterday’s short for Bitcoin was to wait till it tried for US$9,200 and take profit at US$9,100 with a short cover at US$9,240 – this trade was in the money and exited. 

Looking ahead, Bitcoin can be expected to continue trading within a range – low volatility continues to be the order of the day. 

Longs can get in on Bitcoin on a pullback closer to US$9,100 and get out closer to US$9,180 with a stop loss at US$9,060.

Shorts can consider waiting till Bitcoin runs to US$9,190 again and short to US$9,100 with a short cover at US$9,220. 

Trading Ethereum Today

Ethereum did make another move towards US$230 last night, but continued selling pressure from PlusToken wallets siphoned off to cryptocurrency exchanges, continued to put a damper on the upwards push. 

Yesterday the long for Ethereum we suggested was to get in at US$226 and look to cash out at US$228 with a stop loss at US$225.50 – this trade was in the money. 

The short for Ethereum we postulated was to get in at US$228 and short to US$225.50 with a short cover at US$229.50 – another successful trade. 

Looking ahead, Ethereum is trading within a band between US$224 and US$226. 

Longs can consider entering Ethereum closer to US$225.30 and exiting at US$225.90 with a stop loss at US$225.

Shorts can consider waiting till Ethereum makes another run for US$226 and shorting to US$224.50 with a short cover at US$226.50.

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

Exclusive access to Novum Digital Asset Alpha’s Daily Analysis is made in conjunction with Bitcoin Malaysia.

The information and thoughts laid out in this analysis are strictly for information purposes only and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws.

It does not constitute a recommendation or take into account the particular allocation objectives, financial conditions, or needs of specific individuals.

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