We are looking for a specific formation in this area for a potential trade setup. The close Friday was not what we were exactly looking for; pertaining to a bullish position, but it is definitely not one that bears should be excited about either. Markets trade on sentiment, and news can be used to influence a market. One thing I look for in any type of trade, is a lot of pain to a crowded position, and the news attempting to push the market sentiment further in that direction.
“Just as a scenario writer endeavors to mystify his audience, so pools and manipulators strive to confuse and influence the public into thinking a stock is moving in a certain direction when the ultimate purpose is to have it move the other way.” – Richard Wyckoff
Over the past few weeks, we have been discussing some of the writings of Richard Wyckoff one of the greats. Much of our focus has been on how large operators Raid a Market, but let’s take a look how they use their influence to push the herd one way or the other.
Suck Them In:
In poker one of the strategies of great players, is to get someone thinking they are weaker or stronger than the hand they hold. Ever have KJ in the hole, or a similar hand and KKJ flops? The guy across from you sits with AK and bets small and they guy next to him is chasing an open ended straight with Q10 calls and of course there is always someone chasing the flush! You hesitate, think for a bit, and then slow call, saying something to the likes of “I’m priced in here, I have to call”. The key to sucking a bunch of players in, is to act as if your hand is not very strong.
You are literally hoping the flush fills and even the lower part of the straight, and leave them to build the pot up chasing. Yes I know if an Ace hits, it is all over, but the odds are you win this hand 86% of the time. That is what we patiently wait for in poker, the odds stacked in our favor.
This is how many large operators work; they make the herd think one thing, while they position themselves in the other direction. The direction is often painful for a large group of traders; just like the guy who thinks he has the best hand. Sure they do not always win, but the odds are stacked in their favor just like our poker example above. This is why the contrarian trade is often very profitable, but it comes with risk. Is there evidence the herd is running into a potential ambush in the form of an over confident short market?
I know this is not the entire short market, but it is a good sentiment indicator none the less. Five of the last times the market went past the 27,800 short level, it has resulted in a short squeeze. Only the last one was relatively minor but a squeeze non the less and short interest remained high from August to mid October.
This was interesting and we mentioned several times during that period, if BTC can maintain above the 6k level for a long period of time, the probability it breaks out to the upside increases. After about 6 weeks of waiting, impatient shorts exited BEFORE the selloff hit. It was as if the large operators were literally waiting for the retail short player to get tired of holding, before pulling the rug.
Yet once again, into the correction, the shorts have once again piled in. The news is full of FUD and Trading View is full of “analysts” calling for 1k now. This is one of the tools, manipulators and large operators use to push the market in the direction they want it to go, before it goes in the other.
Don’t just take my word, or Wycoff’s 1937 book, listen to the interview with Jim Cramer and how large fund managers do this today. He explains how they use guys like Bob Pasani, the Wall Street Journal and other news outlets to knock down or prop up a stock or market. How they manipulate stocks and the futures markets. “It is not in the best interest of large funds to tell you what they really think, but what they want you to!”
“Get it on CNBC which is very important” – Jim Cramer.
A Bloomberg “analyst” has now come out with a $1500 target for 2019. I have flashbacks to 2015 where gold fell to 1050 and analysts were calling for $900-750-600 gold. Again it is not in their best interest to tell you what they think, but what they want you to think. By June of 2016 gold was over 1300 and then they went bullish and the herd followed.
The longer you are in the market, the more you will see this happening. “We have an insider that says Apple is having trouble selling iPhones, cutting back on suppliers, etc.” Of course you go into Verizon to buy one and “Sold Out”. HUH? Apple of course comes out and crushes it with the most iPhones ever sold, and the stock rallies.
This is why I mention do your homework, and you do not need to turn on the weather channel to know if its raining outside. Something as simple as an online search to the major carriers to see if they had iPhones available told an entirely different story. Or a quick trip to Best Buy, “Hey you selling a lot of iPhones?”, “Yep it’s our top seller”. Hello! This is what large research firms do.
For years the “analysts” were bearish on Apple, then at about $155 or so, boom “Apple target $275”. There was your sign! As painful as it was for me to sell, I started selling Covered Calls and a few weeks ago they were called away as I posted to our premium members. I still love Apple and will look to use our options strategy to get back in, but I do not like how the NASDAQ is acting here so we remain patient.
We were expecting a push to 3100 rather quickly, but this has not evolved. Friday towards the close Bitcoin showed a little strength. Today we see a continued mixed signal candle, yet short interest is continues to climb.
This is definitely not a pattern anyone short would want to see here, just do to the position Bitcoin is in. Yes it is a continuation pattern, but it is also in a position where this could form a reversal pattern. Now it is still early, but if we do not take out the 3200 level in the next day or so, the probability of shorts getting Rekt increases substantially. If we were short here, a break of 3550 would have us closing our position out. We would want to see 3250 taken out in the next 36 hours.
Smart shorts are looking for continuation move, and when that stops, or the market starts hesitating (like our USDCHF trade did recently), they start covering, which triggers a Long Trade Signal, and buyers step in. Over leveraged shorts are liquidated and we subsequently get the short squeeze. This could push us up to 4200-4650 very quickly.
Now again this does not have to happen and we can still continue lower. Momentum is still bearish, we are not in denial here, and there is no sign of a bottom yet. However Bitcoin is in a zone where the probabilities increase for bullish reversal. We are looking for a specific structure and pattern here, and if it forms we will issue an aggressive swing trade. Aggressive implies it has a higher probability of failing. Similar to when we take aggressive Forex trades, we reduce our position size, hence reducing risk.
On The Look Out:
With that said 3100 is a major support level and 2500 is certainly in play now. Calls for 1500? Well those are weather forecasts, not TA regardless of the indicator used. I am not saying it is impossible, but we never forget the first Tenet of TA, markets are a discounting mechanism. The current price is a balance of bulls and bears that have discounted all the news, events and fundamentals at this point in time.
What I am on the lookout for is one more leg down; IF we get it. This is going to give more credence to those calling for $1500 Bitcoin and will suck in more short traders at a profound level. If we get another leg down I will have no issue with pushing. There are particular things we look for, and if they all fall in line, we will take the contrarian trade. We are not there yet but are getting close.
Currently a market move to the upside would cause many more traders pain than a move to the downside. The short vs long leverage ratio is almost 2:1, meaning there are almost twice as many shorts than longs, trading with leverage.
This makes perfect for a contrarian who positions himself against the herd. Especially with all the FUD and bad news surrounding Bitcoin already is being priced into the market.
I want to be clear that I am not saying this is a lump sum investment area, but if you are new and looking for some exposure, or are dollar cost averaging monthly, a small position of your money allocated is not un-warranted. It all depends on the each investor’s means and risk tolerance. We can still head lower and we are actually hoping it will at this point. We want to see the retail investor sucked into an extremely crowded short trade.
All markets are subject to manipulation though many think it is more rampant in the crypto space because of regulation in other markets. Quite the contrary, people feel more secure in other markets, making it easier to manipulate. It is like entering a haunted house, you expect to be scared or a monster to jump out at you, that is the crypto space, everyone is on alert.
Also keep in mind collusion, wash trading, and other illegal activities are illegal in all markets including crypto. The challenge is over-sight and proving it has happened. Foreign exchanges out of the reach of the SEC make this more difficult to prosecute. Just because the term “unregulated” is thrown about, does not imply it is exempt from law.
TeraExchange recently settled with the CFTC for “wash trading”. Laws and regulations apply to both registered and unregistered trading companies. However for every law there is a loop hole, and Jim Cramer explains how large operators get around this in modern day markets.
Also do not forget to check out our current Podcast on Cannabis Stocks this week, or Bitcoin Market Manipulation last week. Next week our Podcast will be on “Sentiment vs Fundamentals” and why trading news events is a bad idea. PODCAST PAGE.