I believe the market may have bottomed. I’m going to make my case for this view today.
One major caveat first: We are still very much in a bear market in terms of trend analysis, clearly below all of the major moving averages, so many would consider this call insane. The conservative approach (and ironically my default) would be to wait until a new bull market is confirmed by the 50 day moving average crossing back above the 200 day, and price rising above the 200 day and retesting from above.
The analysis below is a much more aggressive approach based on capitulation and fear rather than bullishness. As with all TA there are no guarantees, only probabilities. It is a windsock not a crystal ball.
In short then, our ‘danger zone‘ hasn’t disappointed, and we are seeing a confluence of signals saying that our long-awaited capitulation is fully under way, and possibly now finished, with the last retail investors finally throwing in the towel en masse. Everywhere I look people are bearish, with extreme fear in the air.
Significantly, many alts have now unwound the entirety of the autumn 2017 parabolic bubble and are at strong support, while significant divergences are appearing across the market.
Flame-proof wetsuits on, let’s dive in.
I’m starting with the alts this week, then will work back to BTC.
As you can see, since it broke the dashed red support line and entered the ‘danger zone’ ETH has taken a nosedive straight through our $350 target.
It stopped at a crucial point. The colourful bar chart on the right of the chart shows support levels at each price level, sized to represent the volume traded at each level (and hence the strength of the support). As you can see, the bounce was exactly on the strongest $305 red support level which stems from the congestion zone over on the left of the chart.
We are now at the strongest support anywhere on the ETH chart, dating back to its launch as a currency.
RSI (first oscillator under the main chart) is heavily oversold, second only to the March/April bottom, implying a bounce is likely. Note also the rise in volume compared to the recent waning trend.
For balance I should mention what bears will be saying here: “it’s broken down out of the huge triangle it was in”. Yes, it has broken that uptrend, but as we all know such breaks unless confirmed by a retest can easily prove to be feints before the price ultimately reverses back the other way.
At the very least I think we’re going to head back up to $400 (33% above here) to retest the bottom of that triangle:
Normally the charts I publish are log charts – 1cm at the top of the chart and 1cm at the bottom of the chart represent the same % difference, while the price difference will vary hugely: 10% off $2000 is not the same as 10% off $20.
I use this view when charting because it correctly shows the psychology at work at all levels – someone buying at $200,000 doesn’t care about the price moving $2 either way, so a linear chart counting $1, $2, $3 makes no sense.
Occasionally though linear views can give a useful perspective. Here’s a linear chart of Ethereum. This view makes it blatantly clear that ETH has now entirely unwound the autumn’s parabolic blow-off.
Very similar to the Ethereum chart, LTC has fallen down to very significant support (see the bars on the right) and is oversold.
Parabolic correction complete.
We were predicting fireworks on a break of the 0.45 support level, and XRP hasn’t disappointed. It’s now heavily oversold on the RSI and has reached minor support with major support just below.
Corrections from parabolic tops don’t get much more complete than that!
Now this is where it gets interesting. Unlike the altcoins, Bitcoin hasn’t made lower lows, despite the altcoin panic. In fact it’s made a higher low. With 80% correlation normal across the crypto market this is unusual and says ‘divergence’ to me; our sentiment leader is heading off in a different direction to everyone else, and an elastic band effect as alts catch up is entirely possible.
Looking at the moving averages, while the recent rejection of the 50 week moving average (yellow) was bearish, the 50 day moving average (blue) is horizontal here so momentum is sideways not down – and remember we’re making higher lows.
These higher lows have corresponded with – and confirmed – the top of the super-long-term uptrend channel shown below.
Here’s our long-term log uptrend channel dating right back to 2012. BTC has just touched the top of the channel.
Back in 2014 after BTC broke out of its downtrend (dotted green) it returned to kiss the top of that downtrend, not quite getting there, such was buyer enthusiasm. It’s quite possible we are currently doing similar (green circles).
Zooming right in to the 4-hour view, you can see the top of that channel being confirmed multiple times. Bears are fading away but bulls are clearly still in shock despite the break out of the two possible downtrends.
Bitcoin Shorts correlation
Finally, to end this mini-epic, here’s a chart of the number of BTC short positions on Bitfinex (green), with the BTCUSD price superimposed in red.
RSI peaks have tended to correspond with market lows – showing most traders go short at market bottoms. RSI is currently peaking, implying a BTC bounce here.
While we are a long way from being back in a confirmed uptrend, there are multiple signals saying that this may be the bottom, at least for now. As per my little note on the long-term chart, a final drop lower into the bottom of the channel is still possible taking us to $4800, but the wind isn’t blowing that way currently.
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.