The Corona Virus has brought wide spread fear into all markets, not just Bitcoin. When excessive fear strikes there is always a flight to dollars. We saw this in both previous recessions and once again here. However do not discount technicals, they do matter!
Current Technicals Weekly Chart:
Going into Sunday I update my weekly chart and there are a few levels of note here. First the 4500 and 16,000 still define a trading range and until one of these levels are taken out we do not consider the market trending, we consider this a broad range on the daily time frame.
A break of 16k confirms a bullish trend, and taking out 4500 confirms a bearish one nothing changed. I did add the 3800 level here as a very broad support level, which is one to look for a retest. This is an area where we see a lot of buy side orders so if it is broken, look out below, however the more likely outcome is it holds if and when tested. If we push back into this area I am a buyer for the long term.
Want to see a close above 6000, but on the daily we have a more accurate level of 6200. So a close on the weekly above the 6000 level would still favor bulls. Before we get into the daily, lets look at the flight to cash and why this is now a crowded trade.
Flight to Cash:
For those that follow me on other outlets like twitter, I posted this chart several days ago. As traders we do not focus on the news, we focus on the flow of money and here is a good example of where the money went.
The selloff really started back in Feb 20, where the S&P and Bitcoin were correlating in sync almost. Now remember, equities often correlate, until they do not.
There was also a rush to Gold and Treasuries during the flight to risk off as Gold continued to rally for a few days and attempted to make a new high (which we sold some into) but then all hell broke loose.
When panic really hits the market, there is a "get me to cash" mentality and this is what we saw happen on March 9th. A clear flight to cash and those that trade Forex saw this flight was into US Dollars.
So now the cash trade is the crowded trade, and when this happens, this is generally a sign of the bottoming process in equities. Not out of the woods yet, the S&P is setting up for a leg lower here, but we are nearer the bottom than the top most likely.
With everyone in cash, this is now the crowded trade, so it is a good time for those that are able to buy some equities with a 5-10 year time horizon or longer, to take some small bites. If you are a trader only however, this is not the time to be swing trading stocks, just too risky here. The play is short here, but in this area, it can suck in shorts on a quick swing lower, and then we get a big bounce.
Speaking of shorts, lets look at Bitcoin shorts:
Bitcoin shorts are still at elevated levels, and about 30% of them have been squeezed out in the last week. The 17k level marks an area where being short is a crowded trade IMO. However there is still some room here to squeeze shorts and again IMO until we hit the 5600 level, there is still some risk for a short squeeze.
Bitcoin Daily
Prior to the breakout the levels we were looking at were 5700 for a bullish breakout with resistance at 7k and 4850 for a bearish one with 4500 being a support level.
Currently the levels of importance are 6600 for a bullish continuation and 5550 for a bearish swing. The two spinning tops are simply a consolidation due to the position they are in. Often these are misconstrued as reversal patterns, but position is the dictating factor here making it 50/50 either way.
We are looking for a close above 6200 today or near that level, for the trolls that will point out a close at 6185 and go "ohhh it didn't close above 6200". This is a general area, not a precise level. Regardless what we do not want to see is the low of the previous candle taken out.
The risk of a short here is the position of the market. We are still near the lower end of the broader range (weekly chart) which is not a good position to be shorting on a swing trade time frame. The risk of a fake-out is elevated here and a higher probability.
Market still favors shorts, as we may have a lower high structure, with prior selling momentum yet the position below 6000 favors a reversal. In short just a tough area to trade mid range in the short term, but in the broader perspective position favors longs. There are 3 pillars we look at when taking a trade, position, structure and environment.
Position:
In the very short term (not long term, long term favors bulls) position favors shorts slightly based on the current structure which there is not a lot of. A more favorable position for shorter term long traders is in the lower 5k area or a consolidation closer to 7000 for a continuation trade.
Position favors longs below 6000, so I would not be taking a short trade here even if we did short this market. Perfect setup for a bearish fake-out especially since short interest is still elevated. Many shorts are trapped and any pullback would be a reason to exit.
Position is not favorable for new swing trades in my opinion, though one can make the argument for a short setup.
Structure:
Slightly favors shorts, a potential mid term lower high in place implying maybe a retest of the low or a swing towards it.
A more favorable structure would be a retest of 7000 resulting in a lower high, double top or failed high, either with a bearish reversal around the 7000 level. We do not short this market, but if we did this is the area we would be looking to short.
A more favorable structure for longs would be a retest of the 5500 area and a bullish reversal setup. Currently structure favors shorts.
Environment:
Environment also slighly favors shorts here. Prevailing momentum is still bearish.
Nothing to it, this is a risky environment for longs.
Risks of swing trades here:
The risk of taking a long trade at this level is we are in a tough position. Could trigger a long and fake out as a double top or failed high only to reverse and push lower.
The risk of a short here is the same. Short triggers and fakes out, too close to the 5500 support level.
This is an environment for daytraders and position traders either with really short time frames, or broader ones. There is simply too much noise for swing trading at this level IMO, at least in this position.
What to do?
There is not much to do here but let the market play out. Eventually price breaks one way or the other and the next swing will provide more evidence one way or the other. We can guess all day, or we can wait for more evidence.
Like a detective we look for evidence in the market and though we can make early assumptions, they are simply nothing more than that, assumptions. At these levels you are already in a trade or waiting for more evidence.
Cash is Crowded!
Cash is becoming the crowded trade and eventually when it becomes crowded enough, money flows back into equities. Still some room to move lower in stocks and other equities, but we are starting to see money slowly flow into risk off assets like Gold and Treasuries. Even some recently flowing into Bitcoin as well.
As for stocks. OUCH, still some downside risk, not a time to be aggressively buying yet. Will be updating stock market levels later, but quickly.
The 2360 level was a short trigger, but a risky trade for swing traders, as 2250 is a key support level slightly below the trigger. For daytraders or scalpers looking for a few points, fine, but swing traders not so much. The spread between the trigger and stop does not make sense from a R:R perspective, and there is no long signal here. No trade is the best trade for swing traders here.
We want to look for longs in the 2100 area or lower or shorts in the 2700 area if we get a relief rally this week. Until we hit these areas where we are interested in trading we wait. Stick to our strategy and respect the technicals. I know boring, but patience is important in swing trading.
For longer term investors with a 5-10 year time horizon or longer. Well this is an area to take some small bites in companies that have strong balance sheets, good fundamentals and pay a dividend. We will talk more about this tomorrow.
Transparency:
To keep transparency, we were stopped out of our last trade with a 1% loss. Risk management is key and for all the crap I'm sure I will take from the trolls with nothing positive to offer, with a 10k portfolio this amounts to a $100 loss.
I think we will survive the blood shed especially since our crypto trading account is still up 6.7% YTD for the trolls inevitably going to call me out.
We are also long Bitcoin from lower levels as a position trade looking for a pretty broad move. We had a setup in a favorable position, but since the environment and structure is unfavorable we once again limited our risk to 1%. The R:R is 2.0.
See how it plays out and if any of the 3 pillars do show improvement we can still add some more risk (up to 3%) with shorter time trades. We do not have that yet, but we have levels and setups we are looking for and if they develop we will be adding.
In the end it is about money flow and risk management.
Current Technicals Weekly Chart:
Going into Sunday I update my weekly chart and there are a few levels of note here. First the 4500 and 16,000 still define a trading range and until one of these levels are taken out we do not consider the market trending, we consider this a broad range on the daily time frame.
A break of 16k confirms a bullish trend, and taking out 4500 confirms a bearish one nothing changed. I did add the 3800 level here as a very broad support level, which is one to look for a retest. This is an area where we see a lot of buy side orders so if it is broken, look out below, however the more likely outcome is it holds if and when tested. If we push back into this area I am a buyer for the long term.
Want to see a close above 6000, but on the daily we have a more accurate level of 6200. So a close on the weekly above the 6000 level would still favor bulls. Before we get into the daily, lets look at the flight to cash and why this is now a crowded trade.
Flight to Cash:
For those that follow me on other outlets like twitter, I posted this chart several days ago. As traders we do not focus on the news, we focus on the flow of money and here is a good example of where the money went.
The selloff really started back in Feb 20, where the S&P and Bitcoin were correlating in sync almost. Now remember, equities often correlate, until they do not.
There was also a rush to Gold and Treasuries during the flight to risk off as Gold continued to rally for a few days and attempted to make a new high (which we sold some into) but then all hell broke loose.
When panic really hits the market, there is a "get me to cash" mentality and this is what we saw happen on March 9th. A clear flight to cash and those that trade Forex saw this flight was into US Dollars.
So now the cash trade is the crowded trade, and when this happens, this is generally a sign of the bottoming process in equities. Not out of the woods yet, the S&P is setting up for a leg lower here, but we are nearer the bottom than the top most likely.
With everyone in cash, this is now the crowded trade, so it is a good time for those that are able to buy some equities with a 5-10 year time horizon or longer, to take some small bites. If you are a trader only however, this is not the time to be swing trading stocks, just too risky here. The play is short here, but in this area, it can suck in shorts on a quick swing lower, and then we get a big bounce.
Speaking of shorts, lets look at Bitcoin shorts:
Bitcoin shorts are still at elevated levels, and about 30% of them have been squeezed out in the last week. The 17k level marks an area where being short is a crowded trade IMO. However there is still some room here to squeeze shorts and again IMO until we hit the 5600 level, there is still some risk for a short squeeze.
Bitcoin Daily
Prior to the breakout the levels we were looking at were 5700 for a bullish breakout with resistance at 7k and 4850 for a bearish one with 4500 being a support level.
Currently the levels of importance are 6600 for a bullish continuation and 5550 for a bearish swing. The two spinning tops are simply a consolidation due to the position they are in. Often these are misconstrued as reversal patterns, but position is the dictating factor here making it 50/50 either way.
We are looking for a close above 6200 today or near that level, for the trolls that will point out a close at 6185 and go "ohhh it didn't close above 6200". This is a general area, not a precise level. Regardless what we do not want to see is the low of the previous candle taken out.
The risk of a short here is the position of the market. We are still near the lower end of the broader range (weekly chart) which is not a good position to be shorting on a swing trade time frame. The risk of a fake-out is elevated here and a higher probability.
Market still favors shorts, as we may have a lower high structure, with prior selling momentum yet the position below 6000 favors a reversal. In short just a tough area to trade mid range in the short term, but in the broader perspective position favors longs. There are 3 pillars we look at when taking a trade, position, structure and environment.
Position:
In the very short term (not long term, long term favors bulls) position favors shorts slightly based on the current structure which there is not a lot of. A more favorable position for shorter term long traders is in the lower 5k area or a consolidation closer to 7000 for a continuation trade.
Position favors longs below 6000, so I would not be taking a short trade here even if we did short this market. Perfect setup for a bearish fake-out especially since short interest is still elevated. Many shorts are trapped and any pullback would be a reason to exit.
Position is not favorable for new swing trades in my opinion, though one can make the argument for a short setup.
Structure:
Slightly favors shorts, a potential mid term lower high in place implying maybe a retest of the low or a swing towards it.
A more favorable structure would be a retest of 7000 resulting in a lower high, double top or failed high, either with a bearish reversal around the 7000 level. We do not short this market, but if we did this is the area we would be looking to short.
A more favorable structure for longs would be a retest of the 5500 area and a bullish reversal setup. Currently structure favors shorts.
Environment:
Environment also slighly favors shorts here. Prevailing momentum is still bearish.
Nothing to it, this is a risky environment for longs.
Risks of swing trades here:
The risk of taking a long trade at this level is we are in a tough position. Could trigger a long and fake out as a double top or failed high only to reverse and push lower.
The risk of a short here is the same. Short triggers and fakes out, too close to the 5500 support level.
This is an environment for daytraders and position traders either with really short time frames, or broader ones. There is simply too much noise for swing trading at this level IMO, at least in this position.
What to do?
There is not much to do here but let the market play out. Eventually price breaks one way or the other and the next swing will provide more evidence one way or the other. We can guess all day, or we can wait for more evidence.
Like a detective we look for evidence in the market and though we can make early assumptions, they are simply nothing more than that, assumptions. At these levels you are already in a trade or waiting for more evidence.
Cash is Crowded!
Cash is becoming the crowded trade and eventually when it becomes crowded enough, money flows back into equities. Still some room to move lower in stocks and other equities, but we are starting to see money slowly flow into risk off assets like Gold and Treasuries. Even some recently flowing into Bitcoin as well.
As for stocks. OUCH, still some downside risk, not a time to be aggressively buying yet. Will be updating stock market levels later, but quickly.
The 2360 level was a short trigger, but a risky trade for swing traders, as 2250 is a key support level slightly below the trigger. For daytraders or scalpers looking for a few points, fine, but swing traders not so much. The spread between the trigger and stop does not make sense from a R:R perspective, and there is no long signal here. No trade is the best trade for swing traders here.
We want to look for longs in the 2100 area or lower or shorts in the 2700 area if we get a relief rally this week. Until we hit these areas where we are interested in trading we wait. Stick to our strategy and respect the technicals. I know boring, but patience is important in swing trading.
For longer term investors with a 5-10 year time horizon or longer. Well this is an area to take some small bites in companies that have strong balance sheets, good fundamentals and pay a dividend. We will talk more about this tomorrow.
Transparency:
To keep transparency, we were stopped out of our last trade with a 1% loss. Risk management is key and for all the crap I'm sure I will take from the trolls with nothing positive to offer, with a 10k portfolio this amounts to a $100 loss.
I think we will survive the blood shed especially since our crypto trading account is still up 6.7% YTD for the trolls inevitably going to call me out.
We are also long Bitcoin from lower levels as a position trade looking for a pretty broad move. We had a setup in a favorable position, but since the environment and structure is unfavorable we once again limited our risk to 1%. The R:R is 2.0.
See how it plays out and if any of the 3 pillars do show improvement we can still add some more risk (up to 3%) with shorter time trades. We do not have that yet, but we have levels and setups we are looking for and if they develop we will be adding.
In the end it is about money flow and risk management.