The daily RSI being at these levels in a bull market doesn’t make sense. There was only 1 time in bitcoin’s history where RSI was near these levels and we were in a similar phase (bull market coming out of a bear market), which was 26th October 2012. From this analysis I can only conclude 2 things, a bull and a bear case:
• Bear: If we break lower from here (i.e. below $7700) I would consider re-evaluating my long term macro view on bitcoin, and consider that the recent top of $14,000 could be a macro lower high, and that would be it for bitcoin. We will never again see prices higher than that.
• Bull: If we break $8163 (BitMEX) and get follow through past $8500 I would consider the daily lower low is in and we’ll start bouncing. I would call a bottom there at $7736 and say it will have to hold for the macro view to stay bullish. Comparing this period to Oct. 2012, I would expect institutional money to start flooding in and pump the price up like in the insane 10x run ups in 2013, which would time nicely with recession fears/economic downturn, if that happens to also happen. We ran up incredibly hard and fast from 3k to 14k, so I think that might just be a preview of whats to come, and we will see 100k a lot sooner than people think.
These are my macro long term view thoughts on the matter. Short term/trading wise I would still scale in and buy more if we drop below $7700 to catch the bounce, but I would just be selling on a lower high, and I wouldn’t be holding for the long term. I’d just keep what I bought at 3-4k with a stop below 3k. If we fall below 3k here it’s goodnight bitcoin.
I could be drawing conclusions far too big from just the daily RSI, but it just doesn't make sense to me. I think it’s extremely strange that the RSI is where it is in a bull trend, given bitcoin’s past history.
Trade active
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Looking at this chart again, I have realised the best way to determine if we are going back into a bear market:
In previous bull markets, the RSI dipping into oversold on the daily timeframe has always been the best buying opportunity you could ask for.
The difference with previous bear markets is simple: The low created by the first daily oversold conditions has always broken.
If you ensure your entry price is sufficiently close to the low (such as when scaling into an oversold bounce) Then placing a stop below that low after the bounce has taken place should ensure low level of risk.
Trade closed: target reached
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In the end BTC did break the low of $7700 but did not get much follow through. The dip was quickly bought which has formed a nice wick on the current weekly candle. I took my own analysis here with a pinch of salt purely due to the extreme strength we saw in the run up from 3k to 14k. I should have stated that a weekly close below the first low that creates daily oversold conditions would indicate we have entered a bear market. Instead, this was all just a great buying opportunity
The current low of $7300 coincides nicely with the 0.618 fib retracement level as shown on the chart below. I expect to see prices over 10k sometime soon.
@Bullbrain, nice, this makes sense. Not a huge fan of Elliot Waves myself though. We should see 2 consecutive red heiken ashi candles before EOY for this to be the case? Tell me if I am wrong, not too familiar with Heiken Ashi but I know a bit.
Jeff_Cryptopop
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Unfortunately I'm starting to reinforce my idea that this rally was simply a corrective B wave before a much bigger drop. What happens after that, we'll just have to wait and see.
Although there was bullish sentiment, we technically never left the bear market. Now we're not only down more than 20% from the ath, but more than 20% from the recent high and that for more than 2 months.
CryptoHarper
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@Jeff_Cryptopop, Good point on the B wave, but I think it is more likely that we will form a monthly higher low compared to 3k then a straight drop below it. We ran up too much to be able to get there in one shot, unless there was a more fundamental reason behind it like a flaw in the bitcoin code.
I would disagree with you on your second point. I think we did enter a bull market, if not evidenced by the weekly trend change from bear to bull at the 3-4k bottom, then by the sheet size of the run we experienced, hitting the 0.618 fib retracement level. % drop wise, we are past a 40% drop by now. Bitcoin has gone through 45-50% corrective moves before in its past, before continuing to higher highs, so I wouldn't consider that a factor for the bear case for bitcoin.
I am more worried by the fact that the RSI has gotten so low in a bull market. It could potentially be signalling the start of another bear market. We have changed the weekly trend to bearish on this drop, as we have now formed weekly lower lows and lower highs, which adds to the bear case. Although that has happened in past corrective moves before in a bull market (e.g. bitfinex hack), so it is not a deciding factor. I think a daily close with RSI in the teens would be bearish longer term.