Overview:

We have been patiently waiting for a sign that the Crypto Winter was over.  The move last night goes a long way in confirming this.  On the Radio Show / Podcast yesterday we mentioned that if this was a bull market Bitcoin would be taking out the resistance levels with strength.  Less than 12 hours later it took out multiple resistance levels.  Is this a sign or the end of the Crypto Winter and if so where do we add, how do we position and should you jump on the bull train now?

Bitcoin USD:

The 4500 and 5365 levels are midterm resistance levels, and really from 4500-5500 we can consider it an entire resistance zone.  The move last night pushed through both minor resistance areas and the 4500 level we have been talking about for weeks.  Yet we have not taken them out yet!

Not that I am raining on the parade, and this move does go along way in changing the tide of sentiment, but we are still not out of the woods.  We need to see the move stick.

This type of move can also bring in those that have sat on the sidelines looking to buy and push us higher, especially if the 4500 level holds for a couple few days.  The longer it holds the more anxious people get to buy.  Why is this?

We talk about impulsive natures all the time, but really who is buying here?  Sure there are some, but most of this action is active participants.  We need to let the market settle and build a support base.   Most experienced investors will wait to see if the move sticks, not jump on the bandwagon during a swing like this.  They are looking to buy a pullback so lets zoom out to get a better idea of where we are.

Bitcoin USD Weekly:

The 61.8% extension is often a level we use to provide insight into the strength or weakness of a market.  Taking out the 61.8% level is often a sign of strength.  The 5150 level is the 1.618 extension of the initial swing, and we can set our target for the 6300 level in the broader term.

Markets generally do not go straight up in a vertical line especially after a long winter.  Like coming out of hibernation you have to build up your strength, and we will likely see a pullback though it may only be briefly.  I say briefly because everyone and their brother will be looking to buy the pullback.  The phone will be ringing this morning for sure.

Bitcoin USD:

In the shorter term the 61.8% extension was right around 4200.  This overlapped with the broader picture which is why we were hesitant to be aggressive in this area.  It either took out the level with strength or pulled back into the mid 3k area.  We mentioned this on our recent webinar where we went over what exactly we were waiting for.

With the recent breakout we can now look for both swing and position trades, and the initial area of interest is between 4235 and 4450.  These are not areas where we just add blindly we need to see some sign of consolidation and a reversal pattern first.  As nice as this move is, we can pull back into the broader support range between 3725 and 4025.  Though this would negate the current count I show, it would not negate the bullish thesis.

If Bitcoin does break the 4200 level we would be looking at an alternate count and would be likely the last time we get a chance to add in the 3k area. 

Personally I like the 4235 area for a pullback here.  As I mentioned yesterday on the show, even if we do get a breakout, we likely get another opportunity to add at these prices.  If Bitcoin did not breakout we would have likely had another opportunity in the mid 3k area.

Reward vs Risk:

From a Reward Risk perspective, it made no sense in adding around the 4k area.  We were looking at potentially giving up a couple hundred dollars to gain four or five.  The reward to risk was in being patient, not impulsive.  Nobody could see this move until after the fact. All we could do is plan for either scenario.

So though we are now looking for continuation swing trades, and to fade the market with a position trade, we need to let the market calm down here.  CNBC is going to be all over this tomorrow, and every crypto bear has shed their skin and will be calling for 20k now.

Patience has paid off, and we have trading capital to take advantage of a bull market.  Many that were inpatient, looking for trades daily, are trading out of a hole. Was it worth being in the game?  Probably not now. 

The Rise of Fake-Outs:

At the extreme lows who was selling?  Anyone that was shaken out of the market was likely out already.  Many threw in the towel when the rug was taken out late last year.  The question again is, who is selling here, but in a different context.

The signs of a potential return to the bull market were all around us, we were just waiting for confirmation.  We mentioned it in our “Markets in Transition” article and dug deep into the float issue in the article “The Rise of Fake-outs and Why This May Signal A Broader Bull Market”. 

With a move like this, it is unlikely investors are looking to sell, they are more likely looking to buy.  Again, there are two types of players in markets, active participants and investors.  This is an area for investors to accumulate not sell.   The only coins available for accumulation are from the actively traded market.  As the active supply dries up, the only way to bring new coins to market is investors coming off inventory.  This is going to require a decent increase in price and I am not so sure we are there yet. So it is the same question but in a different context.  

Before we were looking at if there was anyone left to sell or throw in the towel.  Now we are asking is there anyone selling because the market is moving higher.  I am not selling here, I am looking to add, and I am sure there are many others in the same boat.  Sentiment has changed from hopelessness to hope and soon it will by hype again.  Is anyone else reading this article looking to sell their inventory here?  Likely not, and this probably paints a broader picture of the market in general.  

Like Gold:

In the gold market the phone does not ring when prices are depressed, but get a nice little rally, gold buyers come out of the wood work.  First it starts with the phone call to get pricing, but they generally hesitate a few days to see what the market does.  This is the typical experienced herd mentality.  Their impulsive nature is telling them to add, but they wait a few days.  I am assuming it will be the same with Bitcoin.  How many times have we seen a spike melt away and retest the lows? Many times, and though investors may not be selling, most are likely going to wait for a pullback. 

The active participants trading the market will be looking to take profits, and as they take in profits, those late to the trade will start to exit their positions.  This is the pullback we are looking for.  However maybe a pullback never comes, this is simply the chance we take, and I am not going to jump in and get that feeling of buyers remorse.  I am going to wait.

Summary:

With this likely to be all over CNBC and the flip flopping of bears, investors will be looking to buy not sell.  This is likely to create a supply and demand issue, pushing the market higher in the short to mid term.  We may not get an opportunity to add in the 3k’s again but you never really know.  We will be looking to add on a pullback in the mid to lower 4’s.  Even if it does not pullback that far, we can always trade into a position.

There are several coins we are looking at for our portfolio now that the market has appeared to turn the corner.  We will be looking to add positions in our portfolio and have cash in both our portfolio and swing trading account to take advantage of a bull market.  Though we took some pain, we are in a good position moving forward.   

3 Responses
    1. Andrew Gonci

      I have received several emails on trimming out. Keep in mind there are several variables including taxes. If you intended it for a position / swing trade, there is no reason not to trim out. However IF you plan on holding for a longer time frame (and that was your intent) this was a very strong move, and you may not get a chance at 3500 again, and if you sell at 4800, your tax liability is 1300. Take 33% of 1300 that is a little over $400, so that implies Bitcoin needs to pullback to $4400 for you to get back in where you started. So in reality it Bitcoin would need to pullback to $4000 to make it worth while.

      Now maybe it does, maybe it doesn’t. Every situation is different, and since I have cash on the side for both position and swing trades, I am not letting any inventory go here. If you need to free up cash, then this is something to think about, but we can still move higher from here.

      I can not tell you how many times I have sat and waited for a move like this and then sold on the first rally only to miss the bulk of the move over the next few months and not get to buy back where I sold. That is a risk, but again it depends on your financial position and your means. I am thinking more of adding on a pullback not selling the initial breakout.

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