Last Week’s Review
In the most recent Mid-Week post, which will occasionally be published due to unexpected or severe moves in the market, we concluded with the following statement
A new range has been established between US$440 and US$500. Allow some time for the markets to settle down and dictate the next move. The long term chart is still considered healthy as long as we remain above this US$440 mark, but in case it give way, look for US$340-360 range as the next line of technical defense. Just like it was said a few days ago, unless faith in bitcoin is being lost, nothing should go straight down so this oversold condition is due for a bonce even if just temporary, but we have lowered this expectation to US$500 before re-evaluating the situation.
So lets go over what happened. The price remained above the established low of US$442, which means the Long Term Up-Trend is still intact (more on that later). This US$440-450 downside target was mentioned as the less likely scenario in the Week of Aug 17 Price Review. As a trader, all possible scenarios are always considered, so that when they happen, there is a plan and you do not end up in ‘panic mode’. The bounce off of this mark was impressive and even went straight though our rebound target of US$500. We also stated last week that we would re-evaluate the situation after the price gets back to US$500, but as a rule of thumb for future reference, once the price got to US$510 (2-3% over resistance) it becomes clear that it will not stand in the way.
The Longer Term chart is still bullish but it faced a critical point when the price dropped to US$442. The Trend Line we added recently is maintaining its form of following the bottoms of the candles ignoring the mid-week volatility. We are back to a critical level of US$500, which is not only a significant round number, but also the 61.8% Fibonacci Retracement. Looking at this chart, the up-side potential is the US$630 mark and in the case of a breakdown, we would look back at the US440 area for a double bottom and if that goes, then watch the US340-US360 zone very carefully.
Fundamentals (aka News)
The news that was mentioned last week about leveraged Trading made full rounds across the news websites with many articles looking to make sense of what many called a ‘Flash Crash’. We can sum it up as follows: leverage trading is dangerous and experienced traders know that once the majority has chosen a side, the trend reverses because the pool of people getting in has disappeared. Leverage accelerates the moves due to margin calls, which is what is suspected to be happening at BitFinex and BTC-e a few days later. The recent rebound might have been assisted by the opposite situation known as a Short Squeeze as a lot of these trades went short BTC thinking it will keep going down. For the moment, it looks like the volatility has subsided and the price is starting to behave rationally once again.
In other news this week, we got the word from the NYDFS that the 45-day review period has been doubled and Australia has released its Tax Guidance. This once again goes to show that Governments all over the world are keeping a close eye on Crypto-Currencies. There were also several interesting situations going on with Alt-Coins that we might dig more into next month, and the US has once again proved its full confusion of what is a Bitcoin with a District Judge ruling it as money in full conflict with the IRS ruling earlier this year and perhaps even FinCEN’s guidance last year.
What does that all mean for the price? A little hard to tell, the delay in the BitLicense proposal should be good for the price. A collapse in the Alt-Coins could be viewed as both because while some might just move their holding to the more stable and proven Bticoin, others might see this as a sign that eventually the problems with the Alt-Coins will affect Bitcoin in the same way. The issue with the ruling should not have much of an affect because most likely it will be in the hands of a higher-level court.
Education (Trend)
This will be a brief section today. A trader should always be aware of trends on multiple time frames. Bitcoin is only a few years old so in a way it makes spotting the trend easier. We all anticipate bitcoin to go up in price over the long term so our longer-term view does not have to go out all too far. The weekly chart is just barely hanging on to the bullish trend that began in May, but the daily chart seen below has been hinting at a downside for about 6 weeks now, and with the break below the descending triangle we’ll need some significant moves to reverse the momentum. The shorter-term chart, which also uses daily candles, is showing signs of a reversal and for the moment appears to be indicating some more upside in the immediate future. Moral of the story: Always know where you stand on multiple time frames and make the most of opportunities when all 3 happen to align in the same direction.
As for a quick word on Trend Lines, use them carefully and at your own risk for several reasons. They are very subjective and it has to be incredibly obvious for everyone to draw it the same way. They are meant to be drawn as ‘thick’ lines and should not be judges due to intra day or temporary piercings. They also always follow price and are not as good for looking into the future for expectations, as some believe. We will occasionally use them but they should only be considered as a primary tool in rare situations.
Daily Overview
Here is the longer-term daily view where we are still referencing Fibonacci Retracements and a few Trend Lines. Notice that the picture has not been looking good ever since the descending triangle became recognizable. (NOTE: yes we do consider the fact that obvious patterns can create a self fulfilling prophecy when it comes to Technical Analysis, but the reverse is also true as described above. When everyone takes the same side of a trade because it obvious, everyone gets burned)
We will usually have two arrows in these charts, but we will try to have one more prominent (thicker) than the other indicating that the probability of it happening is slightly higher. In this case we are keeping a close eye on the bottom of the Triangle at US$560 with a less likely downside target of the recent low at US$442.
The zoomed in view is starting to look really interesting; Thursday’s action has once again proven that the US$500 mark is important as the price bounced right off of it. You will also notice that the downward target of the triangle as been achieved just like in the textbooks as mentioned last week. Also notice several arrows on the chart and use the ‘Thickness” of the arrows as a guide to the more likely expectations.
Conclusion:
We are currently Long-Term Bullish, Intermediate-Term Bearish, and Short-Term Bullish. We will treat the US$500 as the support that is holding the price up, so assuming it does; the highest probability target is the bottom of the triangle at US$560. Once it gets there, the situation will be re-evaluated, but the most likely outcome is some more downside into early September.
Two other scenarios are shown on the short-term chart. If US$500 cannot support the price and we fall back down, look for a double bottom back in the US$440-450 range, and if that gives way as well, we are looking at US$340-360 as next line of defense. Another less likely outcome to keep on your radar is a breakout over US$560 in which case there is some resistance at the top of a triangle at US$590. But there should be plenty of time to re-evaluate this minor possibility as US$560 becomes imminent.
Reference Point: Saturday Aug 23: 3:30 am ET, Bitstamp Price US$508
About the author
Tone Vays is a 10 year veteran of Wall Street working for the likes of JP Morgan Chase and Bear Sterns within their Asset Management divisions. Trading experience includes Equities, Options, Futures and more recently Crypto-Currencies. He is a Bitcoin believer who frequently helps run the live exchange (Satoshi Square) at the NYC Bitcoin Center and more recently started speaking at Bitcoin Conferences world wide. He also runs his own personal blog called LibertyLifeTrail.
Disclaimer: Articles regarding the potential movement in crypto-currency prices are not to be treated as trading advice. Neither Cointelegraph nor the Author assumes responsibility for any trade losses as the final decision on trade execution lies with the reader. Always remember that only those in possession of the private keys are in control of the money.
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