Overview:

Bitcoin continues to show mixed signals after an initial bearish pinbar where we expected a rally and push through the 6800 level.  Yet it failed to break through the 6773 resistance line.  There were a couple of signs that this move may not push through short stop orders starting with the move obvious one, everyone was looking for the short squeeze.

Two days ago there were numerous articles on trading view about the “short squeeze”.  Once the herd gets a hold of information the market quickly prices it in.  This is exactly what happened and with a failure to push higher off a nice rally it was evident that this was likely the crowded trade.

When everyone is posting “the contrarian” trade is long for a short squeeze it is no longer the contrarian trade.  This was our initial sign.

Bitcoin 12 Hour:

There are several important levels here with 6900 the most important for the bulls.  This is not only the previous high, but is also the 0.618 extension from the previous swing.  A push through 6900 would be bullish and likely to squeeze out shorts that raised their stop loss levels. 

Initial support is found at 6593 which was hit earlier this morning.  Our support zone is between the 6375 and 6465 area with 6250 a critical level to hold.

We are simply in no-man’s land and this is exactly what we are seeing with the price action.  Small bodies with long wicks to the up and downside is a sign of consolidation or indecisiveness. 

There were multiple short triggers here, and with the herd looking for a short squeeze, we felt best to exit our position trade in the event the market fell apart.

Not that we were making a rash decision here, quite the contrary we held from august 14th when the market looked like sheer crap and continued to hold for almost two weeks.

Being up nearly 8% and the market not reacting as we anticipated, we took our profits and move to the sidelines in the event we saw the market fall apart.   Shortly after the market pulled back but quickly recovered.

This does provide evidence that the shorts are not in control here and the market may have some underlying strength, but until we see some further evidence we will just stay on the sidelines looking for a better setup.

There was another signal that something just was not right.

Bitcoin Short & Long Interest:

When everyone is calling for a short squeeze the herd normally reacts and they did.  Short interest slowly started decreasing while long interest was increasing.  This should have resulted in a nice rally but in lieu of a rally the market was hesitating.  Not a good sign for spot or late leveraged longs either.

Shortly after the “contrarian” trade was now the “crowded” trade, as the herd positioned itself and the market reacted opposite.  We mention this quite often that the spot price at any time is indicative of all the news and market information available at that time.  When everyone is calling for a short squeeze it seldom happens.  

No different then a football team telling the defense the next play is a pass.  The defense adjusts accordingly, hence no short squeeze at an area where we expected one.  This is why we stepped aside. This does not imply a short squeeze can not happen here; however, the move Saturday was the best chance for one in our opinion.

Adjustments:

These are the reasons we adjusted our stop loss on with our BCH trade and provided an alternate stop loss for those in the BTC position trade from 6200.  Giving one last chance for the market to go our direction, but limiting our loss in the event it fell apart.

Currently the market simply lacks direction which is a coin flip at best.  We still have some exposure in the event the market does rally.  In the event the market pulls back we have cash on the sidelines to take advantage of the selloff.  This in our opinion is the best place to be, we can sleep well.

This does provide some additional insight to the flow of money.  This area appears to be where large buyers stepped aside looking for better prices.  If there was continued accumulation at these levels, with shorts covering and longs adding there should have been a spike.  Smart money may be as well looking for a pullback or has a lower area for accumulating.  We see this in the metals market with dealers that only accumulate under a specific price like $1300.  Over $1300 they are reducing inventory.

Summary:

We are simply allowing the market to find direction and take advantage of the stampede either way it goes.  Unlike our expert swing trades, our position trades are only posted not texted.  We have to provide direction that is not time sensitive, so we choose to step aside here a little early, but better to get out early then late.

Nothing wrong with taking a profit, and we are in a position to take advantage of the next move regardless of direction.  It is always best to be on the side of caution as the goal of any trader or investor is preservation of capital as Marc mentioned in his Expert Swing Article Here.

Photo by Pablo García Saldaña on Unsplash

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