steve.elliott
Short

Why it may get a lot worse....

BITFINEX:BTCUSD   Bitcoin / U.S. Dollar
Why it may get a lot worse.

So, let’s start by saying that I am open minded. I look at scenarios to check feasibility and try and determine how likely a situation is. Whilst I am writing this, I am purely sharing one of those ideas that interested me, and I am not recommending to anyone that they trade based on this information alone. I have an equal number of counter charts suggesting up, as I do charts suggesting more down. Being aware of the possibilities enables us to take advantage as they play out.

At the beginning of February, I started looking at the correlation of the dotcom bubble. I was amazed at how many similarities there were between bitcoin and the NASDAQ bubble that happened (albeit, driven under different timescales). I went through the process of overlaying dotcom to BTC and looking for correlation in spikes and moves to check feasibility of a similar pattern. Overall, I was hugely impressed with the amount of correlation. Sure, there were subtle differences, as you’d expect – but generally, there were a substantial amount of corresponding points to warrant keeping an open mind on it.

From the 5th to the 19th Feb, BTC took a move North which the extent did not match the DOTCOM correlation at all. I was a bit frustrated by this. Everything else on the BTC chart looked almost perfect, and then we get this move up which just looks plain out of place. I gave up on the comparison at that point (the bounce from 6K upwards) as I assumed that must be the end of it if the pattern breaks.

Recently, I started thinking this through a little more and started to realise that exactness was unlikely as the asset classes were being driven in a different way. Even at the top of BTC’s climb on 17th December, the action that follows on the rapid drop and re-bounce from 10,800 are not exact, but that didn’t stop other similarities in the pattern playing out afterwards.

So, chucking aside the idea that there was no correlation, I started to look again at where we might be in the play of the pattern, and what we might still have to come. As we know already, this is just hypothetical as the pattern can play out differently when it chooses to do so, but I wanted to assume that as a minimum, the bubble has a final goal that is similar across both.

Let’s start with that goal….

Mar 26
Comment: We can see by drawing a FIB retracement from zero to 5,200 ish that NASDAQ recoiled to its lowest pretty much smack on the 0.786 (around 1,100). This is shown in my chart as the second set of fibs on the right. If we correlate the overall target to BTC of a 0.786 retracement, this gives us a final target of 4,250 (eeek).
Next, I tried to look at where we are in the current pattern compared to NASDAQ bubble. You can see on the NASDAQ chart that I have drawn to red circles, both of which denote a spike down and subsequent support (around 1,391). Looking at out BTC chart, we can see we have a similar spike down at the bottom of the 12th Nov low to around 5,400. Let’s call this our bottom baseline. Looking right on the BTC chart, we can see we haven’t yet revisited this. We did spike down to around 6,000, but you’ll see that NASDAQ also spiked down to 1,600 before it subsequently went down to hit 1,391. The bounce at 1,600 on NASDAQ also intersected the first low of 1,392 with a previous LL of around 1,200 (shown by my orange dotted trend line). We have a similar orange dotted trend line on BTC but this one doesn’t intersect our first low. There’s a pretty good argument here that maybe this invalidates it, or maybe our red circle on BTC should in fact be at that low of around 3K on 14th September. When I first drew the red circle on BTC, I did draw it on the LL because it looked like that’s where it should be compared to NASDAQ, but then I moved it after looking at the target retrace of 0.786 as this seemed liked a better correlation. I have a feeling that this is quite important, because it could mean and even lower low target, but I’m going to leave it where it is for the moment.
Mar 26
Comment: I mentioned at the beginning the differences that almost made me drop the comparison. You can see that just before NASDAQ hits the baseline the second time, it takes a trip up to the 0.236 fib. BTC pounded that target and instead made a break to the 0.5, where we double topped before heading south again. So, this is the other major difference, and still the one I’m least comfortable with in the whole of this analysis.
Looking again at NASDAQ, we can see that after the second visit to the baseline, we had a bounce up to around 2,090, and then a decline which cuts through our baseline to form a trough down to 1,100.
Mar 26
Comment: SO WHERE ARE WE?
Assuming (presuming) this is going to play out closely, then I think we are currently on our way down to touch the baseline on BTC (shown as the red square box). Bear in mind what I said earlier about the discrepancy on where this baseline is. I’ve plotted it at 5,400 because I think it fits, but there is an argument for 3K also. When we hit this baseline, I believe we will bounce, but we won’t yet have seen the bottom.

As I mentioned at the start, this is just a scenario. Keep your eyes focussed and look for the alternatives. I will be.
Love the detail man....thanks so much....I share your thoughts..
+1 Reply
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