Overview:

As the market pulls back from its recent rally we look at the bottoming structure for signs of a recovery or whether further weakness is in the cards.  As bullish sentiment starts to subside, we are looking for evidence of larger players continuing to add to their positions.  Since we are unable to see order flow, hidden orders, and over 50% of the Bitcoin market is traded over the counter we have to rely on price action and structure as a guide.

The challenge here is whether what we are looking at is a bottoming structure or continuation of a broader correction.

Podcast:

Also for those interested in trading stocks and options our recent podcast was the 3rd of a series where we go over verticals and touch on a more complex strategy, the butterfly.  You can listen to it on our Podcast page.

Next week on our podcast we have a special guest Wild Bill coming into the studio.  Wild Bill has been a long term investor in stocks and a metals dealer for nearly 50 years, so if you have a question for Wild Bill or would like to participate live in our new chat room, please email your question to info@seekingcryptos.com or tune in live.   If you have a question from what is the right coins or bars to buy, how to invest for the long term, or even how he invests in cryptos please feel free to ask.  This is going to be a one hour special and the live chat room should be visible on your dashboard.

 

BTC Weekly

BTCUSD Weekly

Though the correction from a price standpoint has been quite drastic, from a magnitude perspective it is in line with the initial projection of wave A&B.  From an cycle standpoint or Elliott Wave perspective, wave 5 has pulled back to within leg 4 of the shorter term bullish cycle.  Remember bottoming is a process not an event, and the degree of the pullback is not out of the ordinary and can push to the 2800 and still retain the overall structure of a typical correction.

Often price range is so great that the amplitude of a move is dismissed, but in technical analysis this can not be ignored.  After a market or equity is extremely overbought, the pendulum swings and markets become way oversold.  It is never clear during an oversold market, that it is just oversold or there is further weakness ahead, until we start pushing highs.

This is no different than whether the economy is in a recession.  Recessions like bottoms are only evident after it happens, with few exceptions.  Whether this is a bottom and we see a push through 6000 and in hindsight realize this was a final simply a final flushing of weak hands, which resulted in a pullback and breakout will only be known in the future.  All we can do here is speculate.


BTC Daily

The recent rally failed to push higher resulting in a retest of the prior low and slightly above our initial support zone.  If the 3100 level was the bottom, and we are in a recovery, we should start to see some signs that buyers are actively buying into the weakness.  It is simply too early to determine this, and other than guessing the shorter term direction of Bitcoin is unknown.  These are tough positions for any equity and guessing whether this is forming a bullish reversal structure, or a corrective sequence in a continued bear swing is still not clear.  Anyone stating otherwise is simply guessing.

Double bottoms come in all shapes, and though we appear to be testing the prior low we can move as low as 3450 and consider this a double bottom variation.  In otherwords it is within the degree of variation of a market move that we still consider this a double bottom.  In short there is some tolerance to double bottoming that we look at.

There is little difference between a reversal pattern and a continuation pattern.  Often they look the same, as evident from statistics that show symmetrical triangles consolidations have a 55% probability of breaking to the upside.  This makes these about random in the scope of things.  If you look at every symmetrical triangle formations over a large time period you will find the same results, and many others have done the research so there is no point in proving this here.

This is where context position and magnitude play a roll in determining order flow.  The real test here is order flow, as we are in a position to reverse, within the magnitude of a valid corrective cycle we need to see evidence of order flow.


Spotting Bottom and Order Flow

Gold recently capitulated from it’s broader term consolidation and found support at 1160.  This is where buyers finally stepped in pushing gold back above 1215.  As we have mentioned over and over bottoming is a process not an event.  For a little over a month gold jerked around within a large consolidation range before making a swing higher pushing above the previous high.  Again this is not enough for us as traders to go ram-rod bullish, but it is what we look for in an initial bullish recovery.

It was the pullback in November where buyers stepped in absorbing the selloff resulting in a higher low.  So we have a higher high and a higher low showing buyers are aggressively stepping into any selloff here.  This is the type of structure we look for in determining whether order flow is supportive of a bullish reversal.  You can see what happened afterwards, but this is only identifiable after the fact.

However with this information we can now look for longs in gold, and actually there were several setups for trading futures but this is not something we post here.


Comparison

Looking at the gold bottoming structure and comparing it to Bitcoin we can see the similarities with the initial bullish swing.  We have a swing out of an extreme low, and we are now consolidating.  As long as Bitcoin does not push through the 3450 level we are looking at a similar pattern.  What we want to see next is buyers stepping in absorbing the selloff which creates the initial higher low.

Since we are in the process we do not know whether this will hold true or not, only time will tell.  If we push to retest the previous low or down to the 2800 level we will look for a different structure type.  In order for us to become more aggressive we need to see a push to the 4600 area, and the subsequent formation of a higher low.  Until this happens being aggressive with positioning and or trading takes on additional risks.

There are no crystal balls that foretell whether this is a bottom or not, we can only speculate.  Prior to breaking 6k the evidence was based on this level having held numerous times, which is indicative of buyers entering.  As we mentioned in our “market raid” article, it is not uncommon for larger players to push an equity down when the market is primed for a raid.  This could be the case here, and only time will tell.

Summary

Bottom structures come in various shapes, but what we look for is the same regardless and that is simply order flow.  You will not find any oscillator that will provide insight to this indicator, it is only done by recognizing the pattern that form when buyers are absorbing selloffs.

Until we see some more evidence providing a higher probability of this actually being a bottom, we remain optimistically  cautious.  Adding positions here, must be with the understanding that you could take some more pain.  However where better to add than near a low?  Whether you decide to take advantage of these prices is really up to the individual investor, their financial means, and the pain they are willing to take and still sleep well at night.

As far as trading here, this is still a risky area and all trades should be assumed aggressive or high risk.  Trading 5-10 coins in these market conditions is a recipe for disaster.  Even in trending markets we would not be putting on 5-10 swing trades let alone 20.  Regardless if you are trading, this is still not a favorable markets and risk should be adjusted accordingly unless you have reason otherwise.

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4 Responses
  1. jlhequities

    Your wave count can certainly be correct however I believe this is a cycle wave 2 forming. Using a number of diffrent measurements to confirm the wave counts, 1250 was wave 3 and 20k was wave 5. This completes Cycle wave 1. Cycles are measured in decades and BTC being 10 years old it also lines up to a cycle wave 1. So overall this is possibly a 10 year correction instead of a 5 year correction. I’m expecting 6 more months of bear market before the bottom has formed.

    1. Andrew Gonci

      Yes, and many have mentioned that, so even if DEC17 was a 5th wave and this is a 2nd wave in the super cycle, it would be the same, just a broader move higher in the longer term. I think it may be more towards the end of the year or even next year before we retest the highs but you never know. If they approve an ETF or something we can go vertical, and there will be a lot of people that wish they added at 8k let alone 3400

  2. jlhequities

    In my speculator opinion the supply that will be dumped onto market over next 4-6 months will not be able to be absorbed until Baakt comes online. There is no real world demand for BTC yet as infrastructure such as Baakt is not in place yet. Retailers and institutions will then be able to finally have infrastructure for adoption. Not expecting any descent moves until 2nd half of this year and not really getting started until 2020 when a very huge cycle wave 3 begins

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