The last week’s rally off the lows has had some fair potency so far, it’s been by far the most convincing attempt at a breakout rally we’ve had since the December peak.
However, it’s important to remember the mantra:
Bear markets are characterised by powerful countertrend rallies.
So are we still in a bear market? Let’s take a look.
Bitcoin managed to make it over the very uppermost trend line we can draw from the December high. RSI also managed to make it over a rough resistance level which has been where the momentum has fizzled in every countertrend rally since December (dashed horizontal line on RSI oscillator below the main chart). In short, this is a pretty impressive attempted breakout.
Crucially, we must remember this is happening in the context of a death cross (blue over red moving average on the chart), and just under the 200 day moving average (thick red). Until both of those situations change we are still in bear territory and need to be watchful for traps.
So, if it’s a strong rally is there any sign of weakness? Well yes, if we look closely. Over the weekend the rally paused at a powerful resistance level (green). It’s also been rising in an ascending wedge, which shows reducing momentum as the price rises, and this is reinforced by some divergence in the volume at the bottom of the chart. As price has risen volume has dropped.
Meanwhile the picture on Ethereum is quite telling today.
Ethereum has been on a tear, almost doubling since its lows. However, this has put it right up exactly at its 200 day moving average (red) from underneath. As a reminder, these tend to be very tough resistance as they mark the master bull/bear line.
ETH has also reached this moving average while printing an ascending wedge (showing momentum weakening), with diminishing volume, and with RSI flashing a sell signal. All while the death cross is in place. In short, I’m not buying this yet.
Let’s zoom in.
On a 4 hour chart the ascending wedge is even clearer, as is some RSI divergence over the weekend (red arrow showing lower RSI on higher highs). This is happening bang on the superimposed 200 day moving average (red dotted here).
Further if we look at the volume, the high volume impulse moves are all red. Which reminds me of the same point in 2014. ETH was newborn back then, so let’s compare with BTC at this point in 2014.
Bitcoin in 2014
After its death cross in 2014, Bitcoin too rallied off its lows. Like the current market it did so while printing an ascending wedge, and with high volume impulse moves from the bears (red arrows). Finally, it showed the same RSI divergence we are seeing in ETH as it reached the 200 day moving average, showing fading momentum.
What happened next?
Sideways trading, scraping along the 200 day on low volume as the bulls faded away. Eventually this concluded in a resumption of the bear market and much lower lows.
This time our ascending wedge is quite a lot steeper. These patterns tend to conclude quite dramatically, so I wouldn’t be surprised if we saw a faster break downwards this time.
In short, the 2018 picture remains bearish here, despite the upwards momentum we’re seeing everywhere. At the very least supreme caution is merited.
What would change this view?
A high volume break above the 200 day moving average, a successful retest of that moving average with a reversal of the death cross. The downward momentum shown by the 50 day moving average (blue) makes this happening immediately pretty unlikely. Moving averages don’t do right angles. ETH has been punching above its weight, but for it to drag up that blue 50 day moving average simply requires more time in my view.
For now I see more downside (or at best sideways trading) as the most likely outcome.
Ripple is the most ambiguous chart today, as it’s managed to break back above its 200 day moving average. This is potentially bullish, however the volume isn’t huge on the breakout and it’s overbought on the RSI. With the 50 day moving average (blue) still pointing downwards and a death cross in place, a giant pinch of salt is needed here in my view. A successful retest of the 200 day (red) from above and a subsequent move to new recent highs would be required to consider this chart bullish.
Litecoin looks similar to Ethereum in that it’s currently testing its 200 day moving average from below. However this test has coincided exactly with a death cross finally being confirmed on our recent favourite. Volumes remain slight, so a similar prognosis to Ethereum here – sideways or down are the most likely outcomes short term.
BCB Group has no position or opinion on the price of Bitcoin or any other cryptocurrency and this article should not be construed as analysis of or advice regarding the current or future market price of Bitcoin or any other cryptocurrency. No analysis of the price movements of BTC or any other cryptocurrency or any other asset provided by BCB Group should be construed as an invitation or inducement to buy, sell or otherwise to trade BTC or any other cryptocurrency.
Jon is MD of British music production company Poseidon. He began studying technical analysis in 2000 for use in managing his own investments and due to its overlap with behavioural economics – much used in Poseidon’s international marketing work. This has seen the company achieve three iTunes US number one albums in as many years among other notable successes.
A Bitcoin investor since 2013, Jon and has been providing Technical Analysis (TA) commentary for a private community of Cryptocurrency investors since mid 2017.