SquishTrade

BTC's Downtrend Cannot Reverse While Sellers Remain in Control

Short
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BINANCE:BTCUSDT   Bitcoin / TetherUS
Primary Chart: Linear Regression Channel, Fibonacci-Derived Price Target, and Two Long-Term Anchored VWAPs

Many crypto enthusiasts have called for a bottom at the various lows in the BTC's downtrend over the past year. At each of the major lows, eager dip buyers swooped in and tried to pick a market bottom. The major swing lows in this bear market in BTC have occurred in December 2021, January 2022, February 2022, May 2022, and June 2022. Each low likely was considered as the bottom (a final low) by investors who pounced in to buy or averaged down on already losing positions.

Some savvy traders may have identified extreme oversold conditions in crypto markets at each of these lows and traded a 5-20 day rally to make a tidy profit, and such short-term traders are beneficiaries of the sharp bear rallies that have occurred. More patient short sellers have also benefitted from the bounces if they waited until overbought conditions materialized to position bearishly.

The linear regression channel shown on the Primary Chart shows how each interim bear-market low has been followed by a rally back to the top of the regression channel. Once there, investors who had hoped the trend had reversed of the most recent lows were once again disappointed.

How many more lows will disappoint the long-term bulls? No one knows. But the odds are stacked heavily against dip buyers for anything more than short-term rallies from extremely oversold lows at downtrend support.

Both long-term VWAPs shown on the Primary Chart reveal that the average buyer is now underwater. This means sellers remain in control. As long as sellers remain in control, and as long as downtrends remain intact, it's a low-probability bet to hope for major trend reversal—traders, however, who can remain disciplined and follow technical evidence without letting their biases interfere too much, may make handsome profits as price reaches new lows only to sharply rally back to downtrend resistance.

The longer-term VWAPs should be evaluated closely on the Primary Chart. They are both in dark blue. Note that this downtrend has caused price to break below both longer-term anchored VWAPs—one of which is anchored to the pandemic lows in March 2020, and the other of which is anchored to August 2017 lows.

Price has paused at each of the long-term Fibonacci retracements measured from the pandemic lows on March 13, 2022, to all-time highs at $69,000. Over the summer, when BTC has rallied it has shown support at the long-term . 786 retracement level at $17,792.10. But at the other major retracements, price paused for some time and tested and retested before a break of the level occurred. Price has already tested this $17,792.10 level before bouncing back above it. The next time this area is tested, it should prove weaker.

Supplementary Chart A: Long-Term Fibo Retracement Levels


It is possible that price is forming a giant corrective A-B-C zigzag (or WXY pattern involving multiple zigzags) from the all-time high. Elliott Wave can be tricky, and multiple wave counts can remain valid simultaneously. Additionally, Elliott Wave counts can continually evolve as price action disproves some wave counts while opening up the validity of other alternatives at the same time. At this time, however, the entire downtrend can plausibly be viewed as a 3-wave move at the largest degree of trend, thus an ABC or WXY corrective pattern.


Supplementary Chart B: ABC or WXY Elliott-Wave Corrective Pattern from All-Time Highs with Price Target where Two Declining Waves Have Equality or Near Equality


If this is true, price could likely find a low near the 1.00 to 1.272 projections of wave A. More specifically, this means that larger-degree wave C equals the larger-wave A x 1.00 (the same numerical distance between waves A and C), or it means that the larger-degree wave C = larger-degree wave A x 1.272 ($2,292.48), another common relationship in zigzags that is considered nearly equal as well but with a Fibonacci proportion adding a twist—this is a long way down from current levels, but remains a possible EW interpretation.

In the meantime, it makes sense for experienced traders to continue to view the short side (at stronger resistance levels) as the higher probability trade.


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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Comment: Final thought: Can a $6,115 low be reached within 6 months? Arguments for an against would be interesting to hear in the comments. Here are a couple interesting factors to consider for this $6115 low:
Comment: Equity indices have fallen a great deal since August 16's peak in SPX / NDX, and they have also fallen a great deal in the past 2 weeks of trading since Sept. 12 peaks.

Note: Put volume got really high by some measures on Friday last week: this can suggest a relief / short-covering rally can happen any time. And note that equity index futures are down quite a bit the night before the Sept. 26 trading day -- specifically, ES and NQ (equity index futures), which may suggest a bit more downside before a relief bounce materializes.

But overall, this post is not a trade recommendation. Except for advanced trading strategies, shorting when prices have been extended to the downside is not an ideal entry.

This bearish view does *not* suggest (as some have suggested) that a good short entry is here and now, at this level on this date. Better short entries can be had without the need to chase downside moves. As many traders know from experience, when markets get severely oversold, very sharp snapback rallies can occur at any time.

And the disclaimer does clarify that this is more of a technical-analysis commentary rather than a trade recommendation.

Have a great week traders / chart watchers :)
Comment: If BTC is going to stall, a great spot to do so would be at $20,503 to $20,820 -- right at the yellow circle.

Comment: Since this was posted 4 days ago, little has changed. BTC continues to chop above and below the $19,246 level, the level indicated by the arrow in the chart below. Yields plummeted today in the UK and the US due to the BOE's policy decision to buy more bonds to inject liquidity into the bond markets there. This affected yields in the US as well. Yields should be watched for clues. But this market may continue to frustrate bears and bulls alike in the short term. While a new low makes sense before a bear rally should occur, it helps to keep an open mind, staying flexible to follow the market rather than rigidly clinging to any sort of hard and fast prediction. If any major rally occurs, keep an eye on the downtrend line that has been in effect since the all-time highs (shown on the main chart above)
Comment: Here is a look at the longer-term down trendline. Price looks like it's being pulled toward it for another test. The level of resistance for this TL falls as each day passes given its slope.
Will it break?


Comment: Check out this excellent BTC analysis published yesterday (Sept. 28), by @Tradersweekly. One valuable point made by @Tradersweekly is "We believe we will see a dramatic increase in volatility , which will cause even more people to jump back and forth between bullish and bearish narratives."

Comment: Check out this recent long-term view of the S&P 500 if you are interested in equity indices generally:
Comment: BTC has continued to chop sideways. It has chopped around the $19,246 level for over a month now. The big directional move that everyone has been waiting for has simply not occurred yet. It could whipsaw and try a false move before the ultimate directional move occurs.

All the key Fibonacci levels (support and resistance as well as potential targets) remain intact and valid. The linear regression channel still contains price and validates the current downtrend at the level of the primary trend.
Comment: On September 24, SquishTrade wrote the following bearish analysis (shown in quotation marks below). This analysis still applies going forward apparently:

"How many more lows will disappoint the long-term bulls? No one knows. But the odds are stacked heavily against dip buyers for anything more than short-term rallies from extremely oversold lows at downtrend support. Both long-term VWAPs shown on the Primary Chart reveal that the average buyer is now underwater. This means sellers remain in control. As long as sellers remain in control, and as long as downtrends remain intact, it's a low-probability bet to hope for major trend reversal—traders, however, who can remain disciplined and follow technical evidence without letting their biases interfere too much, may make handsome profits as price reaches new lows only to sharply rally back to downtrend resistance."
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