The support that held this market for a year has now broken.
Is it game over and all hope lost for the bulls?
Almost, but not yet.
These markets are tricky, and they don't usually let something that looked like a little too obvious "bottom" at 5800-6100 area to actually be the bottom.
Larger players know that there were lots of stop loss orders just below those levels.
When you know this and have the capital to push the market just enough to trigger those stop losses in a chain reaction (one stop loss triggers the next, and so on), it is only natural that you're going to try to tap all that free liquidity by giving the price just a little nudge in that direction, and leave the rest to domino effect of panic selling and stop loss triggering along with liquidations of overleveraged traders.
All of this while you have your buy orders waiting at the lower prices where those liquidations and stop losses will be sold into and absorbed.
This is also why these kinds of moves are called shakeouts.
It is the equivalent of shaking a tree while holding open a large bag below, and see what falls from the tree into the bag.
You do this only when you see the tree has lots of ripe fruits ready to drop.
This same phenomenon is also known as Wyckoff spring, phase C in Wyckoff accumulation schematic (where market operators test the demand by shaking out most of those who bought near the bottom, before the markup phase).
That was the bullish case (and also the last hope for the bulls).
No one can tell for sure if we're witnessing a shakeout or an actual market breakdown at this point, but there is a way to find out.
How do we find out?
We watch for the characteristics of a shakeout vs a real breakdown.
1. If this is a shakeout (Wyckoff spring), then the price tends to stay below the key support (in this case 5800-6200 area) only for a short time, and then shoots right back up above the support area where it can no longer be threatened by the bears.
In our case, that would mean the price must not stay below 5800 when the monthly candle closes (in 12 days from now), and ideally after that time we should see it break above 6000.
On the other side...
2. If this is a real breakdown, then what usually happens is, the price tries to test the previous support (now turned into resistance) which is the 5850-6200 area, and there it gets rejected hard due to many people waiting the retest to short sell or get out of their bad (trapped) buy entries.
Note that if the bearish momentum is stronger than usual, then these retests only barely touch the lower boundaries of the resistance area (in this case that's 5749-5854).
And finally, this below is the chart of the Wyckoff accumulation range (in case this happens to be accumulation, and we can't know that for sure yet) I posted back in July, along with what kind of moves I'd expect to see in order for it to play out.
As you can see, it played out pretty well so far (as close as you can guess moves in a 5-6 months timespan).
Now it remains to be seen which of the two options I described above are going to happen in order to confirm the trading plan for the next few months from now.
Is it game over and all hope lost for the bulls?
Almost, but not yet.
These markets are tricky, and they don't usually let something that looked like a little too obvious "bottom" at 5800-6100 area to actually be the bottom.
Larger players know that there were lots of stop loss orders just below those levels.
When you know this and have the capital to push the market just enough to trigger those stop losses in a chain reaction (one stop loss triggers the next, and so on), it is only natural that you're going to try to tap all that free liquidity by giving the price just a little nudge in that direction, and leave the rest to domino effect of panic selling and stop loss triggering along with liquidations of overleveraged traders.
All of this while you have your buy orders waiting at the lower prices where those liquidations and stop losses will be sold into and absorbed.
This is also why these kinds of moves are called shakeouts.
It is the equivalent of shaking a tree while holding open a large bag below, and see what falls from the tree into the bag.
You do this only when you see the tree has lots of ripe fruits ready to drop.
This same phenomenon is also known as Wyckoff spring, phase C in Wyckoff accumulation schematic (where market operators test the demand by shaking out most of those who bought near the bottom, before the markup phase).
That was the bullish case (and also the last hope for the bulls).
No one can tell for sure if we're witnessing a shakeout or an actual market breakdown at this point, but there is a way to find out.
How do we find out?
We watch for the characteristics of a shakeout vs a real breakdown.
1. If this is a shakeout (Wyckoff spring), then the price tends to stay below the key support (in this case 5800-6200 area) only for a short time, and then shoots right back up above the support area where it can no longer be threatened by the bears.
In our case, that would mean the price must not stay below 5800 when the monthly candle closes (in 12 days from now), and ideally after that time we should see it break above 6000.
On the other side...
2. If this is a real breakdown, then what usually happens is, the price tries to test the previous support (now turned into resistance) which is the 5850-6200 area, and there it gets rejected hard due to many people waiting the retest to short sell or get out of their bad (trapped) buy entries.
Note that if the bearish momentum is stronger than usual, then these retests only barely touch the lower boundaries of the resistance area (in this case that's 5749-5854).
And finally, this below is the chart of the Wyckoff accumulation range (in case this happens to be accumulation, and we can't know that for sure yet) I posted back in July, along with what kind of moves I'd expect to see in order for it to play out.
As you can see, it played out pretty well so far (as close as you can guess moves in a 5-6 months timespan).
Now it remains to be seen which of the two options I described above are going to happen in order to confirm the trading plan for the next few months from now.
Comment:
Still no relief rally, even though it's almost inevitable to happen.
The potential wedge I posted above is no longer "potential" (it was never a real wedge, as mentioned, but it was a possible one in forming). That's off the table now.
One thing to watch here is the volume is increasing as the price keeps dropping. That is very bearish.
Since the price kept falling with no retracements upwards whatsoever, it also means that the volume you see on the chart below will likely keep increasing with each candle until it culminates and produces an even higher volume candle which is going to end up in a strong and sharp bounce in a single candle. That candle usually ends up being the highest volume candle (where it wicks to the lowest levels possible in this one move, and goes up sharply).
This will be the sign of the relief rally finally happening.
The longer it keeps dropping like this, the stronger that candle is likely to be, and the relief rally is going to be equally sharp to the upside.
Those usually trap a lot of people thinking that was THE bottom, and "this must be the reversal, I'm going all in here", but that's unlikely going to be the bottom everyone expects. Just a relief rally (though it can rach some nice levels above and coincidentally make good profits if caught properly).
4800, 5120, 5400, 5629, 5749-5850 are all going to be possible maximum targets for that kind of relief rally.
But be very careful trying to catch the bottom of this move, because it stopped being rational and it became overly emotional, with signs of capitulation behaviour. Especially not recommended trading with any kind of leverage here, because the wicks might be crazy (in both directions).
Careful laddered spot buys all the way down to 3580-3100 area would make more sense.
The potential wedge I posted above is no longer "potential" (it was never a real wedge, as mentioned, but it was a possible one in forming). That's off the table now.
One thing to watch here is the volume is increasing as the price keeps dropping. That is very bearish.
Since the price kept falling with no retracements upwards whatsoever, it also means that the volume you see on the chart below will likely keep increasing with each candle until it culminates and produces an even higher volume candle which is going to end up in a strong and sharp bounce in a single candle. That candle usually ends up being the highest volume candle (where it wicks to the lowest levels possible in this one move, and goes up sharply).
This will be the sign of the relief rally finally happening.
The longer it keeps dropping like this, the stronger that candle is likely to be, and the relief rally is going to be equally sharp to the upside.
Those usually trap a lot of people thinking that was THE bottom, and "this must be the reversal, I'm going all in here", but that's unlikely going to be the bottom everyone expects. Just a relief rally (though it can rach some nice levels above and coincidentally make good profits if caught properly).
4800, 5120, 5400, 5629, 5749-5850 are all going to be possible maximum targets for that kind of relief rally.
But be very careful trying to catch the bottom of this move, because it stopped being rational and it became overly emotional, with signs of capitulation behaviour. Especially not recommended trading with any kind of leverage here, because the wicks might be crazy (in both directions).
Careful laddered spot buys all the way down to 3580-3100 area would make more sense.
2. No relief rallies since the break of 6000-5800 yearly support. Still not tested and still not confirmed as resistance.
3. Potential falling wedge forming on the 4h timeframe (still not a fully valid wedge, that is why it's "potential", but enough to serve as one of the clues, even though you can't base the trade only on the wedge itself here)
4. Bullish RSI divergence on 4h (plays well with the wedge pattern in case it gets completed)
That being said, this is likely to make another attempt to push lower and touch 4900s again, possibly even 4800s.
We could see a relatively nice relief rally from these levels mentioned above within the next few days.