One More Test 'Til the Bottom: Why I'm Not Long-Term Buying Yet
For anybody who's a long-term bull like me, Bitcoin's breakdown on November 14 likely felt like a dark day in crypto. For a few key reasons, the supposedly stable bottom previously held in the 5.8K to 6K range simply collapsed. Since then, it's been a free-fall to an unknown bottom.
To be honest, this was a surprise as much as it wasn't a surprise. Why? I'll explain my thoughts, dating back to my first published idea on April 6.
I declared on April 6 that Bitcoin was "already" testing the bottom, using key regression indicators for my supporting arguments. At the time, that call was spot-on -- for SHORT-term investing. And let's be clear: that was my mindset. After all, I labeled my investment strategy "short."
However, if we were to look long-term, we should have seen an obvious dynamic at play. Simply stated, Bitcoin dropped from 19K to 6K too quickly, so regression analytics favored a bounce back. That much occurred, and BTC reached the 9.8K area. However, with such a quick approach to the bottom precedes a more stable return to the bottom. Thus, the approach to 9.8K was short-lived as well. Bitcoin was destined to head back to the 6K range for an extended period of time. That too played out reasonably. From early September to mid-November, Bitcoin remained between 6K and 7K. This was something I also called (to an extent -- correct idea, incorrect follow-up) when I claimed at the end of August that Bitcoin's volatile days were momentarily finished.
All this price action made sense -- until November 14. In a few hours, the bottom was gone. If you were at work like me, you probably missed the action, which is why stop-losses are important! If you had that stop-loss at 5.5K to 5.7K, maybe you were feeling queasy for a few days, but then November 19 came. Gone was 5K! And suddenly you made a simple, yet brilliant move to protect yourself from disaster.
I'll be honest with you. I still contend Bitcoin had established a bottom in the 5.8K to 6K range. However, I'm also not surprised that bottom feel out, causing us to currently test the 200-week moving average, as seen in this chart (I had to use Bitstamp instead of the preferred Coinbase, because Bitstamp has the sufficient data range to show a lengthy 200W-MA.) That's because Bitcoin wasn't ready yet to recover from the bottom quickly, leaving it vulnerable to some extent of a sudden capitulation. Personally, I believe the childish drama surrounding the Bitcoin Cash fork either soured or scared off many retail investors, causing a sudden drop. Combine that with the countless stop-losses always in play, and the drop was amplified by the order automation. Let's be clear: this in itself can create a new bottom for Bitcoin, because all cryptocurrency assets are still in a mostly-speculative stage, causing abnormal volatility.
Now, for my point: we still have one more major test before we confirm the Bitcoin bottom for the next year or so. Yes, I'm talking LONG-term this time. That one major test is shown in the chart, and it's the 200-week moving average. As I type this, the 200W-MA is at about $3178, which is close to the active BTC price on Bitstamp. Meanwhile, the weekly RSI indicates an oversell for the first time since BTC completed its December 2017 peak. By all means, there is an argument to make that we have met the bottom. HOWEVER, we need to this play out and be confirmed! The test is happening right now!
If Bitcoin fails to uphold this 200-week moving average, expect some level of capitulation in the next few weeks. And it'll be quite familiar to that least green wave of FOMO we experienced almost exactly one year ago. Crazy.
Once this specific drama plays out, I'll most likely be ready to buy, because I believe this drama will most likely determine where our long-term (re: 1-2 year) bottom will be. Until then though, I'll just type out my thoughts. Happy trading, my friends!
To be honest, this was a surprise as much as it wasn't a surprise. Why? I'll explain my thoughts, dating back to my first published idea on April 6.
I declared on April 6 that Bitcoin was "already" testing the bottom, using key regression indicators for my supporting arguments. At the time, that call was spot-on -- for SHORT-term investing. And let's be clear: that was my mindset. After all, I labeled my investment strategy "short."
However, if we were to look long-term, we should have seen an obvious dynamic at play. Simply stated, Bitcoin dropped from 19K to 6K too quickly, so regression analytics favored a bounce back. That much occurred, and BTC reached the 9.8K area. However, with such a quick approach to the bottom precedes a more stable return to the bottom. Thus, the approach to 9.8K was short-lived as well. Bitcoin was destined to head back to the 6K range for an extended period of time. That too played out reasonably. From early September to mid-November, Bitcoin remained between 6K and 7K. This was something I also called (to an extent -- correct idea, incorrect follow-up) when I claimed at the end of August that Bitcoin's volatile days were momentarily finished.
All this price action made sense -- until November 14. In a few hours, the bottom was gone. If you were at work like me, you probably missed the action, which is why stop-losses are important! If you had that stop-loss at 5.5K to 5.7K, maybe you were feeling queasy for a few days, but then November 19 came. Gone was 5K! And suddenly you made a simple, yet brilliant move to protect yourself from disaster.
I'll be honest with you. I still contend Bitcoin had established a bottom in the 5.8K to 6K range. However, I'm also not surprised that bottom feel out, causing us to currently test the 200-week moving average, as seen in this chart (I had to use Bitstamp instead of the preferred Coinbase, because Bitstamp has the sufficient data range to show a lengthy 200W-MA.) That's because Bitcoin wasn't ready yet to recover from the bottom quickly, leaving it vulnerable to some extent of a sudden capitulation. Personally, I believe the childish drama surrounding the Bitcoin Cash fork either soured or scared off many retail investors, causing a sudden drop. Combine that with the countless stop-losses always in play, and the drop was amplified by the order automation. Let's be clear: this in itself can create a new bottom for Bitcoin, because all cryptocurrency assets are still in a mostly-speculative stage, causing abnormal volatility.
Now, for my point: we still have one more major test before we confirm the Bitcoin bottom for the next year or so. Yes, I'm talking LONG-term this time. That one major test is shown in the chart, and it's the 200-week moving average. As I type this, the 200W-MA is at about $3178, which is close to the active BTC price on Bitstamp. Meanwhile, the weekly RSI indicates an oversell for the first time since BTC completed its December 2017 peak. By all means, there is an argument to make that we have met the bottom. HOWEVER, we need to this play out and be confirmed! The test is happening right now!
If Bitcoin fails to uphold this 200-week moving average, expect some level of capitulation in the next few weeks. And it'll be quite familiar to that least green wave of FOMO we experienced almost exactly one year ago. Crazy.
Once this specific drama plays out, I'll most likely be ready to buy, because I believe this drama will most likely determine where our long-term (re: 1-2 year) bottom will be. Until then though, I'll just type out my thoughts. Happy trading, my friends!
We went from flat price action for about two months to roughly cutting the price in half over about one month. This outlying dynamic usually sets off the alarms for regression analysts. And I'm one of them, as I use regression analytics for short-term trading. In this context, it is possible that 200W-MA support leads to a correction, only for the 200W-MA to be tested again a few months later.
On the flip side, if the 200W-MA gets broken, I could see some capitulation to about 2K or so. Or maybe even lower. Remember, I don't have the bottom set-up right now. Either way, this capitulation would strengthen the case for (1) a cheap buy, and (2) quick recovery from an overextended bottom. REMEMBER! Bitcoin tops and bottoms are generally set by a rapid spike! And it is accompanied by a major overbuy or oversell that sets off the alarms for regression analysts! That's why I initially called the bottom at 5.8K to 6K back in April. And that's also why it held until the forking BCH drama (pun intended) in November.
So, I urge you to be smart in upcoming weeks. I AM NOT TELLING YOU TO BUY AT ANY POINT HERE. This is not advice, but merely a look into my thought process at this seemingly pivotal juncture. This specific drama would take a few weeks (if the 200W-MA fails) or a few months (if the 200W-MA holds during the first test). Use my regression-based viewpoint as one of many schools of thought before you buy (or sell) in any market!