Crypto Finally Corrects While Alts Outperform
It's time for an update on the current situation with the crypto market. Recently, I've speculated that many cryptocurrencies would be about to begin their first major wave to take them out of the bear market. In 2019, we saw Bitcoin already come close to exiting its own bear market. However, many altcoins suffered during the same time period, proving to us that the market hadn't really seen the end of its price discovery period. This resulted in a retest of the $6.4K level for Bitcoin, and many alts either made new lows or headed back towards levels not seen since December 2018 - January 2019. This drop caused many alts to continue resembling Bitcoin's bottoming period from 2015-2016, and the recent price explosion for alts has further confirmed these structural similarities.
Why did it happen this way? And why are alts outperforming Bitcoin BEFORE the halving?
One of my favorite things about analysis is figuring out why something is occurring. It fits with my desire to understand people, and it's also why I work in the mental health field. We should really think in terms of money flow and liquidity. Everyone knows that alts provided the largest percentage gains in 2016-2017. This was mostly fueled by retail money. Since the recent bear market began, many altcoins sustained much higher levels than where they took off in 2016-2017. This means that they're substantially more liquid than they were at that time. There are tons of USDT pairings for alts now, but at the end of 2017 there were only a few pairs on Binance. After the bull ended, a lot of money cashed out into USDT from alts and Bitcoin. This led to Tether's rise in the rankings, exacerbated by continuous printing of the stable coin. It was very easy to push the narrative that alts would get wiped off the map, with Bitcoin making a solo run to $14K, leaving many alts in the dust. This wasn't necessarily "manipulation," but normal market behavior where a select few with deep pockets were able to take advantage. People naturally flee to "quality" when things are looking bad, because they lose hope and inherently think there's something wrong with what they own. It then becomes a follow the herd mentality.
Meanwhile, the observant and patient investors have not forgotten about altcoins, and their profit potential. What I think we're seeing now is a lot of that sideline money that cashed out into Tether finally start to enter alts for "long term" positions. In the first part of 2019, a lot of USDT moved into Bitcoin, but not alts. Profits were taken (including massive margin positions), and that extra money is now entering altcoin positions as well. The more profit there is to throw around in the market, the more people gamble on completely speculative assets. This also goes for stocks. I actually speculated this would start happening all the way back in August/September, when I attempted to call the top in dominance.
This is how the market cycle works. Psychologically it makes sense for people to front run the halving by buying alts, since they think Bitcoin profit will flow into alts afterwards, like what happened in the previous bull market. Additionally, as I explained in my recent market cycle update, alts actually started slowly outperforming Bitcoin even before the previous all-time-high was tested. In my recent posts, I've also talked about the unusually high On-Balance Volume for alts, which showed massive accumulation on some exchanges, particularly Poloniex.
Now onto the technical analysis
Due to how extensive this rally has been, it makes sense to take a breather here. Bitcoin couldn't even crack the $10.5K resistance from October, even though alts were able to break their own October resistance. This showed us some hidden market weakness. The TOTAL market cap moved up to $300B in one move, and TOTAL2 touched $110B. To be honest, I wasn't expecting it to crack $270B so quickly, but I did say that a move above there could get us in some June 2019 price ranges, which is exactly what happened. I also said that if TOTAL2 cracked $80B it could easily head to $100B and above. Yet again, we found resistance up there, likely due to many crypto owners yet again getting close to break even on their investments and cashing out. There was real strength behind these moves though, as confirmed by our ultimate oscillator breakout and moving averages universally starting to look bullish, forming bullish cross after bullish cross. The market looks stronger than it did in June 2019.
The question is...how deep does this correction take us? Most coins that have broken out of their downtrends still have plenty of room to drop. You can see this reflected in the TOTAL and TOTAL2 charts above. This rally looked over-extended the last few days, so it would make sense for TOTAL to retest anywhere between $230B and $270B. For us to remain in "buy the dip" territory, I think TOTAL needs to stay above the important $230B level. I think the shallowest retrace we can have for TOTAL is simply $270B, as that's also a major long term pivot area. Right now, we're still testing that level. Ideally, I would like to see TOTAL2 close above the 100w MA (green), even if it's a red candle. It has not closed a single weekly candle above there since 2018. If not, we can drop hard and begin another slow rise/consolidation period like what we saw in February-April 2019.
Charts
What's telling me that we may need to see a deeper correction over the next week or two is Bitcoin. It looks like it's trying to break down from a rising wedge, and it can easily target the high $8K level and the 200d MA (blue).
Dominance is making a correction up from an important horizontal level, though I do ultimately expect it to drop further once the market correction ends. It can move all the way up towards 67% and remain bearish.
ETH/BTC is retesting the secondary long term resistance right now as support, so perhaps dominance doesn't go up much further from here. We'll see.
ETH/USD is about to experience another bullish cross, but it can dump hard towards $193-200 if it really needs to. It's hard to say where this correction can end up, if it's not over already. I'm just trying to give levels where we could potentially see some strong action.
If ETH can't bounce here and close the weekly above $256 and the 100w MA, I think it becomes more likely that it can test the $193-200 level.
VET may need to test the broken downtrend as support before it moves up again. If it breaks back into the downtrend, that wouldn't be good news for this particular coin.
XLM still has plenty of room to correct further, but we really want to see it close this week above the broken downtrend, or it can once again experience a major failure.
NEO may be unable to close this week above the important $14-15 level, so it could head back to the 50d MA, around $11.31. If it can bounce soon and close in bullish fashion, that opens the door towards my next target at $20.
LTC hasn't quite gotten to the $93-100 zone I was looking at for the top of this rally. It may just need to refuel, but I was sort of thinking LTC could retrace a lot of the pump, back to the 200d MA (around $60) for some slower accumulation. This may be what the rest of the market will need to do as well, which would give a chance for those MA's to catch up and align more bullishly. The yellow line is what I drew in December as a speculative trajectory.
In conclusion, I'm not surprised to see a correction here. I forecasted the move up from bottom and called the top in Bitcoin dominance, but I can't claim to know where we'll be headed in the short term. We have several scenarios that can play out:
1) We bounce now and head straight up again next week, blasting through June 2019 highs.
2) We bounce here and consolidate for 2-3 weeks to cool off.
3) We head a bit lower and then eventually move sideways/slowly up to begin the next wave.
4) We drop hard through major support levels and ruin the bullish picture entirely. I think this could happen if alts dumped below $75B again and TOTAL sustained a dump below $230B.
I'm proud of myself for forecasting pretty much all the major market moves in the last year. Over the last several months, most of my speculative charts have been very accurate. I recently called the precise reversal in Dominance AND the bottom for Litecoin and the rest of the market. Those are linked at bottom for your viewing pleasure :)
Thanks for reading!
This is not financial advice. I do this for fun, and it should be used for speculation and education only.
-Victor Cobra
Why did it happen this way? And why are alts outperforming Bitcoin BEFORE the halving?
One of my favorite things about analysis is figuring out why something is occurring. It fits with my desire to understand people, and it's also why I work in the mental health field. We should really think in terms of money flow and liquidity. Everyone knows that alts provided the largest percentage gains in 2016-2017. This was mostly fueled by retail money. Since the recent bear market began, many altcoins sustained much higher levels than where they took off in 2016-2017. This means that they're substantially more liquid than they were at that time. There are tons of USDT pairings for alts now, but at the end of 2017 there were only a few pairs on Binance. After the bull ended, a lot of money cashed out into USDT from alts and Bitcoin. This led to Tether's rise in the rankings, exacerbated by continuous printing of the stable coin. It was very easy to push the narrative that alts would get wiped off the map, with Bitcoin making a solo run to $14K, leaving many alts in the dust. This wasn't necessarily "manipulation," but normal market behavior where a select few with deep pockets were able to take advantage. People naturally flee to "quality" when things are looking bad, because they lose hope and inherently think there's something wrong with what they own. It then becomes a follow the herd mentality.
Meanwhile, the observant and patient investors have not forgotten about altcoins, and their profit potential. What I think we're seeing now is a lot of that sideline money that cashed out into Tether finally start to enter alts for "long term" positions. In the first part of 2019, a lot of USDT moved into Bitcoin, but not alts. Profits were taken (including massive margin positions), and that extra money is now entering altcoin positions as well. The more profit there is to throw around in the market, the more people gamble on completely speculative assets. This also goes for stocks. I actually speculated this would start happening all the way back in August/September, when I attempted to call the top in dominance.
This is how the market cycle works. Psychologically it makes sense for people to front run the halving by buying alts, since they think Bitcoin profit will flow into alts afterwards, like what happened in the previous bull market. Additionally, as I explained in my recent market cycle update, alts actually started slowly outperforming Bitcoin even before the previous all-time-high was tested. In my recent posts, I've also talked about the unusually high On-Balance Volume for alts, which showed massive accumulation on some exchanges, particularly Poloniex.
Now onto the technical analysis
Due to how extensive this rally has been, it makes sense to take a breather here. Bitcoin couldn't even crack the $10.5K resistance from October, even though alts were able to break their own October resistance. This showed us some hidden market weakness. The TOTAL market cap moved up to $300B in one move, and TOTAL2 touched $110B. To be honest, I wasn't expecting it to crack $270B so quickly, but I did say that a move above there could get us in some June 2019 price ranges, which is exactly what happened. I also said that if TOTAL2 cracked $80B it could easily head to $100B and above. Yet again, we found resistance up there, likely due to many crypto owners yet again getting close to break even on their investments and cashing out. There was real strength behind these moves though, as confirmed by our ultimate oscillator breakout and moving averages universally starting to look bullish, forming bullish cross after bullish cross. The market looks stronger than it did in June 2019.
The question is...how deep does this correction take us? Most coins that have broken out of their downtrends still have plenty of room to drop. You can see this reflected in the TOTAL and TOTAL2 charts above. This rally looked over-extended the last few days, so it would make sense for TOTAL to retest anywhere between $230B and $270B. For us to remain in "buy the dip" territory, I think TOTAL needs to stay above the important $230B level. I think the shallowest retrace we can have for TOTAL is simply $270B, as that's also a major long term pivot area. Right now, we're still testing that level. Ideally, I would like to see TOTAL2 close above the 100w MA (green), even if it's a red candle. It has not closed a single weekly candle above there since 2018. If not, we can drop hard and begin another slow rise/consolidation period like what we saw in February-April 2019.
Charts
What's telling me that we may need to see a deeper correction over the next week or two is Bitcoin. It looks like it's trying to break down from a rising wedge, and it can easily target the high $8K level and the 200d MA (blue).
Dominance is making a correction up from an important horizontal level, though I do ultimately expect it to drop further once the market correction ends. It can move all the way up towards 67% and remain bearish.
ETH/BTC is retesting the secondary long term resistance right now as support, so perhaps dominance doesn't go up much further from here. We'll see.
ETH/USD is about to experience another bullish cross, but it can dump hard towards $193-200 if it really needs to. It's hard to say where this correction can end up, if it's not over already. I'm just trying to give levels where we could potentially see some strong action.
If ETH can't bounce here and close the weekly above $256 and the 100w MA, I think it becomes more likely that it can test the $193-200 level.
VET may need to test the broken downtrend as support before it moves up again. If it breaks back into the downtrend, that wouldn't be good news for this particular coin.
XLM still has plenty of room to correct further, but we really want to see it close this week above the broken downtrend, or it can once again experience a major failure.
NEO may be unable to close this week above the important $14-15 level, so it could head back to the 50d MA, around $11.31. If it can bounce soon and close in bullish fashion, that opens the door towards my next target at $20.
LTC hasn't quite gotten to the $93-100 zone I was looking at for the top of this rally. It may just need to refuel, but I was sort of thinking LTC could retrace a lot of the pump, back to the 200d MA (around $60) for some slower accumulation. This may be what the rest of the market will need to do as well, which would give a chance for those MA's to catch up and align more bullishly. The yellow line is what I drew in December as a speculative trajectory.
In conclusion, I'm not surprised to see a correction here. I forecasted the move up from bottom and called the top in Bitcoin dominance, but I can't claim to know where we'll be headed in the short term. We have several scenarios that can play out:
1) We bounce now and head straight up again next week, blasting through June 2019 highs.
2) We bounce here and consolidate for 2-3 weeks to cool off.
3) We head a bit lower and then eventually move sideways/slowly up to begin the next wave.
4) We drop hard through major support levels and ruin the bullish picture entirely. I think this could happen if alts dumped below $75B again and TOTAL sustained a dump below $230B.
I'm proud of myself for forecasting pretty much all the major market moves in the last year. Over the last several months, most of my speculative charts have been very accurate. I recently called the precise reversal in Dominance AND the bottom for Litecoin and the rest of the market. Those are linked at bottom for your viewing pleasure :)
Thanks for reading!
This is not financial advice. I do this for fun, and it should be used for speculation and education only.
-Victor Cobra
Comment:
Looks like we’ve headed slightly lower today. Interestingly enough, it’s mostly Bitcoin and mid-cap alts that have suffered. Additionally, we’re still seeing a positive correlation between altcoin dominance and USD price. This means at least big cap altcoins are still looking strong.
Comment:
Still in consolidation mode. Wouldn't be surprised to see a couple more weeks of sideways, given that the 9w MA (orange) might need to be tested before a resumption of the uptrend. Patience is important here. It seems that $250B and $270B are providing fairly strong support for now. Again, a decisive break below the $230B level would probably negate the bullish picture, but things look very healthy so far.
Comment:
ETH and TOTAL2 are still barely hanging onto the 100w MA as support. I think we may need to continue consolidating to allow the 9 and 50 week moving averages to catch up.
Comment:
My red long term downtrend line for dominance is essentially confirmed at this point. Perhaps alts need some relief soon, but the rising wedge breakdown has caused 9 red weekly candles in a row. The MACD, Moving Averages, and the UO all confirm the bearish breakdown.
