2/21/2018 The Market View and Trading Outlook
Good old fashioned Bitcoin volatility.. gotta love it.. So what is happening in the world of BTC price action? Well, BTC did pretty much what I expected it would do, albeit a bit later and at a higher price point. It has come back to meet the two hour 77 period moving average after busting below the one hour 77 at $11,002. Price currently sits at $10,700 or basically on the two hour 77 period moving average. That said we are at a somewhat pivotal price point that should provide us with a semi definitive answer as to whether or not we are out of the corrective woods and on our way to much higher highs or in for a follow on shit storm of lower low corrective misery.
There are really only two possible scenarios at play for the moment. The first being an inverted head and shoulders that could lead us to considerably higher highs and the second being a downward channel that could lead us to considerably lower lows; the latter of which is (in my opinion) the least likely scenario of the two. However, in order to remain objective you have to consider both possibilities and be prepared for both so as not to be caught in a situation that could bring about panic forcing you to trade erratically and get your capital eaten away.
Let’s examine the bullish scenario first… Inverted head and shoulders..
I first noted the beginning of this pattern forming 11 days ago:
I was a bit off as to how high it would go prior to pulling back. Regardless I play in the shorter frames, was aware of it, and did better in the shorter term that I figured. I would rather be way early in recognizing a potential pattern as opposed to way late.
So what is likely? If we get a nice inverted head and shoulders then price should fall somewhere in the range of $9,500-10,100 prior to rebounding upwards, out of the channel and on its way to much higher highs. We have volume confirmation on the left shoulder, and head, but the right shoulder has yet to spike upwards validating the pattern. I have drawn what I would like to see in the volume section. The yellow box in the center is the sweet spot for a reversal to the upside as the pattern completes. Ideally, volume should spike while price is somewhere within my sweet spot, signaling reversal and good things to come. This is likely where I would begin to ladder in long positions. Of note the 4 hour 77 period moving average is also within this zone and if you examine the totality of price action since the decline around $19,900, you will notice that price ALWAYS comes back to meet the longer term moving average at some point. I briefly covered moving average pullback here https://steemit.com/bitcoin/@pawsdog/2-18-2018-the-market-view-and-trading-outlook
As far as this pattern goes that is basically the entire story. We do know that BTC loves to shake people out at physiological strong points, or support levels that the masses feel are very strong. To that end I would not be at all surprised to a breach of $10,000 or an unsubstantiated support level that many “feel” is the tipping point in price towards the downside. This would force some nice panic sells, drop price onto the actual support of the 4 hour 77 and allow the pattern to complete, recover and go about its business of making higher highs.
Now to the ugly Bearish scenario of a descending channel.
I covered this on 2-18 as well https://steemit.com/bitcoin/@pawsdog/2-18-2018-the-market-view-and-trading-outlook
To that end not a a lot has changed and my lines have remained the same since that analysis and we have yet to decisively break above the upwards resistance line. In fact we faced pretty hefty resistance and rejection right on it or just after breaking above it depending upon where one draws their upper channel. This pattern is pretty simple and needs little explanation. In the event of a full on bearish shit storm price will decline towards each respective longer term moving average, bounce upwards, then sharply reverse on its way towards the bottom of the channel in the sub $5000 range.
Again, I don’t (at current) think this is the predominant pattern, but it could be and need to be prepared for that eventuality. Much will be learned from how price and the 4 hour 77 period moving average interact with each other; a decisive break below and a large move downwards would be concerning and could have longer term bearish consequences as we move towards a lower than $6000.00 low. At this moment this is something to be aware of and if you start to ladder in on the inverse head and shoulder set your stops around $8900-$9400 depending upon where you get in so as you can be out if things go south. I typically run stops 3-7% depending upon whether the market is bullish or bearish. In a bearish market I tighten them up, in a bullish market I give them a bit of wiggle room.
Briefly covering the 12 hour. The MACD histogram is rapidly declining and currently sits at 21 or its lowest point since the pseudo recovery started at $6000. This could be indicative of a buying period that is on its way out and a selling period that is one its way in. Accordingly RSI, which has been in the overbought area for quite some time is likewise rapidly retreating towards the south, again indicative of a likely upcoming selling period. At the moment I don’t consider any of this to be bad news as we did accomplish the mission of getting the MACD signal line above 0, which should now provide substantial support and a good bounce point towards future gains after some pullback and consolidation. In a perfect world and if BTC stays bullish and decides to play inline with fundamentals, expect a few days of sideways decline prior to confirmation of inverse head and shoulders and a move upwards. I do not expect to see 11,700 again in the next 24-48 hours.
The 1 day is essentially the same story, decreasing histogram, retreating RSI etc. Of note the rejection around $11,700 also coincides with the resistance of the MACD 0 line which we are currently below and lack the momentum to break above. The long and short of it is that we need a selling period to get rid of some weak hands, and provide more faith upon recovery so as to have the necessary momentum to break above it. In this frame the 1 day 21 period moving average is currently $9244, as long as price remains above it, it will incrementally creep upwards until it and price meet where it will provide support. In a perfect scenario, the 1 day 21 will meet up with price at about the same time as the 4 hour 77 and 12 hour MACD 0; somewhere in my sweet spot from above. At this point, price will reverse sharply upwards and higher highs would be the forecast. Keep an eye on the 1 day 21, and the 4 hour 77 for convergence with price and I would expect this to be an excellent long entry point.
In a rush, sorry for spelling errors etc.. Happy trading.. Off to finish my duck pond.
Lastly for Alt Lovers.... Check NBT (Nubits) in times of BTC correction, you may like what you see...
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