Good morning, traders. I hope you were able to join the live stream yesterday morning as we discussed exactly what happened, calmly and unemotionally (okay, so I may have laughed a bit) -- how it was playing out as I suggested it would months ago if we saw a terminal shakeout and what to expect next. So far, things continue to play out as expected. The next few days are crucial, however, in determining which way price is likely to go. The reality of it is that the 1D RSI is obscenely low at 14 and the 4H remains oversold at 9 after closing at an anemic 5.5 yesterday morning. We even see the 3D moving into oversold territory this morning. This means that we should expect a good bounce at the very least. No, it doesn't happen immediately, but it should happen sooner rather than later. As such, traders should be paying attention to the 1D chart.
Not all price drops are created equal. So, what do I believe happened yesterday? I believe it was a terminal shakeout. A normal shakeout/spring is initiated during a bullish/upward trend and is a product of, or otherwise characterized by, weakening price. A terminal shakeout, however, is preceded by a trading range and comes at the end of accumulation, signalling that the preparation for mark up is complete. If you've been following me for a few months then you know price had been in a tight TR since the end of the first week in September. That's just over 2 months. You can also zoom out and notice that it had been in a larger TR since the Selling Climax on February 5th. Whichever you choose to look at, the reality is that this drop came after being in a TR for quite a while making it much more likely to be a terminal shakeout than a normal drop toward $3000 as the result of a descending triangle.
The purpose of the terminal shakeout is to scare the remaining weak hands into selling their asset prior to mark up commencing by creating a false impression of the direction of the market thereby creating a "bear trap." It does this by running stops on longs and encouraging short selling. Once the shorts are locked in and stops have been run, price reverses causing shorts to liquidate or cover as well as FOMO into longs from those sitting on the sidelines. Watching tucsky.github.io/SignificantTrades/ we were able to witness longs' stops getting triggered and numerous, significant, liquidations. Bitfinex shorts grew 8500 in the past 24 hours. That's 45%. And of course www.coinfarm.online/index.asp showed Bitmex shorts growing substantially as well, causing the funding rate to flip strong and hard to shorts paying exponentially more to longs (www.coinfarm.online/rank/funding.asp). Remember, all contributors to the market affect price finding, so although Bitfinex is having its own issues with the new bank and Tether's value, and Bitmex deals with swaps, rather than spot, these things help us get a clearer picture of what's going on in the market. The terminal shakeout results from poor quality supply which is another way of saying weak hands hold too much supply. It is then answered with high quality demand. The key in all of this is how much supply is removed from the market and how much of that supply is absorbed. This will become much more clear in the next few days. So far, we saw large volume on yesterday's drop suggesting that C.O. was hard at work absorbing the supply. We continue to see good-to-decent volume today, suggesting the same. Importantly, the volume yesterday was much lower than the SC in February which tells us that there is much less supply floating around than there was back then, further suggesting 2018 has likely been accumulation.
At this point, price has hit my first target area between $5250 and $5460. We may see a bit more downside, however, which would tap liquidity sitting just under $5000. If price happens to make it that far down, my expectation at this time is to see a good-sized candle as price rebounds out of that liquidity. The buildup of shorts on the shakeout should help fuel upward momentum. I expect to see a Test around the bottom of the 2018 accumulation TR ($5900 area) before continuing higher once buying picks up, but depending on just how much supply has been removed from the market, price may overshoot that level.
Remember, you can always click on the "share" button in the lower right hand of the screen, under the chart, and then click on "Make it mine" from the popup menu in order to get a live version of the chart that you can explore on your own.
Not all price drops are created equal. So, what do I believe happened yesterday? I believe it was a terminal shakeout. A normal shakeout/spring is initiated during a bullish/upward trend and is a product of, or otherwise characterized by, weakening price. A terminal shakeout, however, is preceded by a trading range and comes at the end of accumulation, signalling that the preparation for mark up is complete. If you've been following me for a few months then you know price had been in a tight TR since the end of the first week in September. That's just over 2 months. You can also zoom out and notice that it had been in a larger TR since the Selling Climax on February 5th. Whichever you choose to look at, the reality is that this drop came after being in a TR for quite a while making it much more likely to be a terminal shakeout than a normal drop toward $3000 as the result of a descending triangle.
The purpose of the terminal shakeout is to scare the remaining weak hands into selling their asset prior to mark up commencing by creating a false impression of the direction of the market thereby creating a "bear trap." It does this by running stops on longs and encouraging short selling. Once the shorts are locked in and stops have been run, price reverses causing shorts to liquidate or cover as well as FOMO into longs from those sitting on the sidelines. Watching tucsky.github.io/SignificantTrades/ we were able to witness longs' stops getting triggered and numerous, significant, liquidations. Bitfinex shorts grew 8500 in the past 24 hours. That's 45%. And of course www.coinfarm.online/index.asp showed Bitmex shorts growing substantially as well, causing the funding rate to flip strong and hard to shorts paying exponentially more to longs (www.coinfarm.online/rank/funding.asp). Remember, all contributors to the market affect price finding, so although Bitfinex is having its own issues with the new bank and Tether's value, and Bitmex deals with swaps, rather than spot, these things help us get a clearer picture of what's going on in the market. The terminal shakeout results from poor quality supply which is another way of saying weak hands hold too much supply. It is then answered with high quality demand. The key in all of this is how much supply is removed from the market and how much of that supply is absorbed. This will become much more clear in the next few days. So far, we saw large volume on yesterday's drop suggesting that C.O. was hard at work absorbing the supply. We continue to see good-to-decent volume today, suggesting the same. Importantly, the volume yesterday was much lower than the SC in February which tells us that there is much less supply floating around than there was back then, further suggesting 2018 has likely been accumulation.
At this point, price has hit my first target area between $5250 and $5460. We may see a bit more downside, however, which would tap liquidity sitting just under $5000. If price happens to make it that far down, my expectation at this time is to see a good-sized candle as price rebounds out of that liquidity. The buildup of shorts on the shakeout should help fuel upward momentum. I expect to see a Test around the bottom of the 2018 accumulation TR ($5900 area) before continuing higher once buying picks up, but depending on just how much supply has been removed from the market, price may overshoot that level.
Remember, you can always click on the "share" button in the lower right hand of the screen, under the chart, and then click on "Make it mine" from the popup menu in order to get a live version of the chart that you can explore on your own.