[Author’s note: Please follow me on Twitter (@Tone_LLT) for additional updates to the state of Bitcoin's price volatility]

Last Week’s Review

In last week’s post we concluded with the following statement:

“Our overall stance is now Long-Term Neutral (still have the issue of not enough new users), Intermediate-Term very slightly Bearish with lots of good signs, and Short-Term Bullish. The ideal situation is for a short decline over the next few days to establish a higher low at US$340 support and then a rebound to test recent highs at US$400. Breaking those highs and establishing a new one would be the perfect scenario for a technical reversal.”

There was more in the conclusion, but when the primary case describes the expected week pretty well, there is no need to copy all of it and is left for the reader to go back and review. The pull back down to US$340 to establish a new higher low did not take place, but a new high at US$400 resistance did.  After some consolidation a newer high was made at US$415, which warranted the following tweet:

The pull back from US$415 did not fall to the desired US$365 level but US$370 is more than close enough.  Ideally, a more visible higher low would be nice to see but as most know Bitcoin can take some unpredictable and crazy turns so anything even resembling a traditional Fiat trading pattern is more than welcome.

So what does this all mean, well it pretty much implies that we have a nice healthy uptrend and after being Bearish and sad most of the summer, the near turn future is starting to look pretty bright for those sitting on bitcoins and frustrating for those that missed out on picking up some last year and were expecting to see a price of US$100 this year to get in so they could be the smartest ones in the room.

The Long-Term View is starting to look very promising. One minor worry is the formation of a candle known as the shooting start but that alone is not an indication that the bullish run we have been on for two weeks is over. Much more will need to develop.

We can now start thinking about upper end targets, the first significant of which is the break above the PayPal news hype at US$450. It is still too early to say if the low for the year is in, but it is looking promising at the moment.

Education (Indicators pt. I - MACD)

The Moving Average Convergence Divergence (aka MACD) is a very common indicator followed by Technical Traders as it helps identify areas of price momentum swings.

There are plenty of on-line resources that will teach you more, but a good one can be found in Chart School on StockCharts.com. To explain it in laymen’s terms for a non-trader, an assumption is made that you are already familiar with Moving Averages.  But even if you are not, looking at the MACD indicator on a price chart does provide an interesting view of what happens in price movement above it.

One way this MACD is used to trade is to enter positions based on the days where the Blue line crosses the Red. It indicates a change in momentum & trend and is considered a signal to pull the trigger.

One other way the MACD is used by traders is to help spot Divergences also described in detail in the Chart School link above. Here is a visual example of a divergence.

In these situations where the price makes a higher high but the MACD makes a lower high, there is a higher probability that the price will take a larger hit down then it did the previous time it made a high.  Similar cases occur in reverse as prices make lower lows but the MACD makes a higher low, it tends to lead to a larger rebound than the previous rebound.

Fundamentals & News

The time during the late summer when this section would typically say “not much news this week” is starting to be sorely missed as the fall is bringing about more news events than a person can keep up with and still maintain a life outside of all Bitcoin, all the time.  Once again the following re-caps are plugged because this analyst actually reads them:

It’s hard to pick out what was the most important event. It feels like it was the Moolah/MintPal implosion that put the Doge creator Jackson Palmer in the spotlight by exposing the scam artist known as Alex Green. Now there was much discussion all over the space including Reddit where the question on whether this is good for Bitcoin was posed.

The correct answer is: This is irrelevant for Bitcoin and the price action proves it.

It is always frustrating to research news on a company as you hear of them after they have imploded and then find out they managed to raise US$500,000 from the Bitcoin reddit community, ohhh my! I’m assuming it’s the same people that will now be screaming for regulation to high heavens.

Once again this his to be re-iterated. Anyone who is in possession of bitcoins and CHOOSES to hand them over to an exchange has to understand that there is a possibility of them being lost or stolen. It really is that simple, for the first time in computer history you are able to hold something electronically that no one else can take from you, but too many simply insist on just handing it over.

Only trade with the amounts you are willing to lose.

Ok, so now that we got none AML/KYC compliant exchanges out of the way, let’s talk about the darlings that are in the fore-front of regulation. These are the ones with proper AML/KYC and this rosy bunch, depending on who you ask, can be even worse.

As fun as it is to give up your ID and picture and finger prints and potentially a DNA or blood sample tomorrow at a Bitcoin ATM machine, clearly people have agreed this is what a free society should be. It’s fully understandable that it’s easy to just connect your bank account to buy bitcoins or use a credit card, but for Bitcoin to become what it was meant to be and change the system, people views on government control of money must also change.

Either it will end up being meaningless and just a neat payment system or a lot of those same people so willing to give up their info will not be so happy when the IRS or other thugs with guns come knocking on their door.

So what does all that have to do with analyzing the price of Bitcoin? Quite a lot actually. Just look at the recent statements by the CEO of JP Morgan:

“Bitcoin developers are going to try and eat our lunch, and that’s fine. That’s called competition, and we’ll be competing”

The last time a bank like JP Morgan Chase even had a whiff of ‘competition’ the actual JP Morgan was still alive and we were in the 19th Century prior to the creation of the Federal Reserve. Everyone holding their bitcoins has to think about the consequences of how to use them and more importantly how to acquire them and where to store them. The end result of this condescending statement is positive for BTC Price.

Speaking of separating Bitcoin holders from their wealth, we have more 2.0 offerings… the winner this week is the circus that is Bitnation. The creator of the project does not seem to have any issues with at least half the team quitting before the crowdsale. As interesting as the project sounds, the world is not even ready for Bitcoin yet and some actually believe this will work. Again, as a price analyst, it looks like people might actually wise up and be more selective who they hand over their bitcoins too… end result, positive for BTC Price

And finally, we have the now world famous NYDFS unelected bureaucrat dropping some of the extra crazy demands in the legislation just to make everybody feel better.  Once again this can be both positive and negative for the price. Will institutions embrace it and will Wall Street money pile in? Or are they creating an environment by which there will never be global mechanisms of financial freedom because it has to abide by NY laws.

The News and Fundamentals are complex. Things are never what they seem.

“If the US Government would just come out and criminalize Bitcoin holders, we can all watch the price soar past $10,000 per coin”

                           -- Tone Vays

Daily Overview

Here is our 1-year Daily chart still referencing Fibonacci Retracements and a few Trend Lines broken back in July:

This ‘intermediate’ term time frame is now officially bullish; we have seen a higher high and higher low. There is no reason to expect any significant downside as long as the recent lows at US$370 are not broken to the downside. 

Another thing that was not mentioned in the section above was the potential influence of the recent 10% fall in the US Stock Market. Remember, legacy fiat system instability is very positive for Bitcoin as long as it remains outside of legacy fiat system integration. A crash in the Stock Market will have people thinking about diversification and at the moment even with all the negatives surrounding the Bitcoin Ecosystem, it is still a safer store of wealth if properly handled.

The Short-Term Chart, which is just the zoomed in version of the one above, looks very clean. We are establishing higher highs, which is bullish and even though it would be nicer to see more defined lows we will take what we can get.  The trend has clearly changed even if just temporary and a new high is to be expected from a probability perspective. The US$400 line is still a tough cookie and we still need to deal with the 50 day Moving average (blue), but right now let’s see if US$440 can be reached over the next week or two.

Conclusion

Our overall stance is now Long-Term Slightly Bullish, Intermediate-Term can now be considered Bullish, and Short-Term is also Bullish.

Regular readers will recall how a few weeks before the big drop to the US$200’s, it was stated in this series how this was the scariest charts have looked in a long time, well now we have the complete opposite. Sitting right here on the verge of breaking back above US$400 is the best charts have looked in months.

Nothing is ever guaranteed, but the ideal situation right now is to break above the US$400 resistance and make new highs in the US$440-450 range to match the PayPal news hype. Then a pull back establishing a real visual low back at this US$400 zone as it becomes support. 

Since nothing is ever perfect, here are additional two cases to keep a close eye on listed in order of importance:

Bearish: Because our main view is currently very Bullish and looking for new highs, our primary concern has to be what will keep us up at night. The low at US$370 was not deep enough to really bring in buyers like the lows a week earlier did at US$275. Some more downside to re-test this low or even drop as low as US$340 followed by swift buying is perfectly reasonable.

Bullish: Once the price breaks past US$400 and makes new highs, buyers should step in out of fear of missing out the next big rally - watch resistance points at $420 (last week’s high and Moving Average), $440-450 (major resistance), and $500 (psychoological number and a Fibonacci line).

Reference Point:  Monday 12:30 am ET, Bitstamp Price US$380

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.