BTC - Supply and Demand based look at levels

BITFINEX:BTCUSD   Bitcoin / U.S. Dollar
If we begin with the premise that we are surviving a parabolic bubble - and much of the buying in the initial run upwards resulted in sell offs on the way down as people try to exit at break even before they lose money. So the resulting people in the market now are either rekt or those who bought in late last year (or Mex /Alt artists). For this illustration I've used the Bitfinex chart for more complete price history late last year and early this year.

So with that said for each large level of buying, it stands to reason that we should find a generally equivalent level of selling within the same price range - but on the other side of the peak. Buying on one side of the blow off top, and selling on the other.

Now with that in mind, we can draw up some levels and begin to connect them based on the volume of buying. So I've numbered the highest buy volume candles on this weekly chart, and connected them sideways to selling after the peak. Each buy candle is connected at the bottom (the price the buying started) to a selling candle at the top (the price the selling started)

So let's take number 1 as an example to help you understand the chart - We had a lot of buying in the price range which roughly started at 10.8. If we follow the blue box along you can see some pretty strong selling reactions to that level on the way down, buyers were able to sell off at a few points over the next few months ending with the final opportunity in March.

There are two numbers I want to draw your attention to:

Number 3: There was a lot of buying here in this 5.8 to 6 range. As price has subsequently hit that area 3 times thereafter on the other side of the bubble top, there has been more and more chances to sell off. This area has held well though, and for whatever reason the buyers within that range have been less and less likely to capitulate. That may well change the next time we test that range, as typically supports get weaker. But for now it's holding.

If 5.8 is broken cleanly and those buyers capitulate I believe it'll set off a cascade down to...

Number 7: This is where we saw a large amount of buying last year in the range starting at 4.6. IMO if we ever reach this area it would almost definitely be the bottom, as there just wasn't any significant bubble type growth immediately prior to this, and we saw much more natural growth there.

If we ever get down to this point, I believe we'll bounce out pretty drastically in a V-Shape reversal and it will signal the end of the bull run. Why? Simply because there will not be any bubble based capitulation left. We are then dealing far less buying volume to cascade sell offs. The bubble would have been reset.

So there we have it - an alternate view on levels and my reasoning as to why.
Comment: The other thought I had, and this is a little wacky...

If these levels really do represent buying and subsequent capitulation, the 'normal' rules surrounding S/R might not apply. Normally the greater number of times a support is hit the weaker it gets.

However in this case if sellers are looking for capitulation opportunities to prevent selling at a loss, the greater number of times the area is hit the more those sellers will be exhausted at those levels.

This wouldn't normally make sense, but perhaps in a bubble, in this particular circumstance it does. Just a thought. Probably not though.


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