Overview:

As we look to do our webinar today on Elliott Waves today, it is often thought that like Fibonacci they are some magical indicators that provide some mysterious foresight into the future.  This could be no further from the truth as they are by nature subjective.  Often we must adjust our thinking, and re-evaluate the market cycle we are in and take into account new information as it becomes available.

So looking over a few charts I am starting to lean towards we may not have finished the initial cycle at this point.  Now only time will tell and whether we are just completing wave 1 in the broader term, or in wave 3 is insignificant for longer term investors, we are clearly not in a final wave cycle yet.

The most important aspect of positioning or trading is simply the trend.  Forget all the wave counts, RSI’s, Fibonacci, MACD’s etc, in the end the only thing that counts is the trend.

 

LTCUSD

Litecoin

The instrument that has the cleanest and most developed structure is Litecoin.   With the bullish trend still in tact I am not trimming out any here personally, but as we did mention to our subscribers, this is a good area to take some profits.  I want to trim out weaker instruments that do not have as strong or a well defined trend as Litecoin, not ones that are leading the market. This is a different topic for a different day and everyone has their own strategy for taking profits.

Personally I like to let winners run and Litecoin is a clear winner, not just recently, but since the market started.

Eventually Litecoin will break or at least retest the bullish trend line, and this would complete a broader cycle.  Initially I had wave 5 completed already, but the recent push higher, and taking out the 125.0 level had me rethinking my count.  

Now the top could be here as 140 was the upper end of our initial target level, but there is the potential for the rally to continue and the next area of interest is between 175-225.  The 175.0 level overlaps with the 38.2% retrace of the overall bearish swing from the 2018 highs, so in my opinion there is still some room to run for Litecoin, and of all the major coins it has performed the best.

Because we have not retested the trend, let along broken it, I am considering we may still be in an initial wave 1 swing, or interim wave 5.  There just is no evidence that a wave 5 has completed, and normally broader wave 2’s are more complex corrective cycles.  

 

BTCUSD

Bitcoin

Litecoin had a clear selloff for wave 3 and a relatively nice distinct pullback.  At the same time, Bitcoin was simply consolidating for another leg up and has only now had a distinct and clear pullback.  My thinking is we just completed wave 4 and there is likely another wave higher since the trend line is still intact. 

Now again this is subjective to the person reviewing the market cycle and some may say, this completes wave 1 in the broader term, and there is no right or wrong answer.  Like anything else it is highly opinionated and subjective to say the least.

Taking out the 9750 level without a test of the prevailing trend line would add further weight that we are still in an initial broader wave 1.  I have adjusted slightly my targets with a high end of 11,100 for completion of this cycle.

We could also see Bitcoin fail to push through the 9750 level and pullback quickly and retest the lower 8k area.  At this point, 7000 is becoming an unlikely scenario, but not quite yet. 

In short I am not convinced due to the recent swing higher that we have completed the initial cycle.  Lets take a look at the daily which has some signs of a corrective nature to it, on the shorter term time frame.

BTCUSD

Bitcoin Corrective Cycle?

The price action from mid May does have a corrective nature to it and we can not ignore this.  Taking out the 8500 level was significant and I am now questioning whether we are just entering a shorter term 5th wave higher.  Our trend line is still in tact, and we do have a valid corrective cycle.

However this can still be part of a broader correction as broader cycles have more complex corrective sequences as we saw throughout 2018.  They can be weeks or months even, but this is a mid term cycle, so we would expect it to last for a few weeks to a couple months.  

What would make it more likely we are in the 5th wave of the initial cycle is taking out the 9k level.  Sounds easy, but this is a psychological level that overlaps with the extension of the previous bullish swing.   What does make it very possible is that shorts are piling in heavily as we rally.  A short squeeze here can definitely send us into the 9750 to 10k area quickly, but this should be followed up by profit taking and completion of the initial bullish cycle. 

Bitcoin Short Interest

When we take into account the prevailing correction, though shallow, it is enough for us to consider it complete.  The question is have we completed it or are we still in the final leg higher.  Regardless if it has completed or is making another swing into the major resistance area between 9 or 11k, we will simply wait for an opportunity and not chase breakouts.

 

Summary:

The market is in a difficult position to make assumptions or to be overly aggressive here, but for long term investors there is never a bad time to buy.  For shorter term investors such as position trades, we want to see at least a pullback here, before going long and will keep our order in place in the event the market does fake out.  

This is why we do not attempt to get in and out with 100% of our portfolio and those that do often find themselves missing a move.  Sure we all want to be 100% invested when the market makes a big move, but you never know when that will be.  Of course being 100% invested when the market pulls back puts you in a situation to not take advantage of selloffs.  This is where balance comes in.

In our long term portfolio we try to balance having cash on hand to take advantage of selloffs, but still have exposure to the markets when they rally unexpectedly.  20-30% cash is good where you expect a market top, and if it continues to move higher, you should be happy with 70-80% exposure.  If you are not, you are in the wrong game.

To be clear short and long term investing is a completely different strategy than swing or day-trading.  Swing and day-trading strategies are all in all out, and it is important to look for quality setups, vs just any setup.  IF you do both it is important to have your money separate and not make swing trades investments, or investments swing trades.  Mixing the strategies will more often then not lead to losses or reduced gains.

Even if the market continues to rally and we are sitting on 20-30% cash, we can use a combination of swing and position trading to build into a small position.  In the end it is NOT about being right or wrong, but being prepared.  You are never going to catch every move and those that claim they do, are simply snake oil salesmen.  

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4 Responses
  1. Kcollins5311

    Loved the trade idea yesterday regarding FB, but what is your opinion on how thier new FB coin will influence this market, both for bitcoin and the alts? Additive for momentum or a disruptor, especially to the alts?

    1. Andrew Gonci

      Thanks Collins, I think it will be a positive for the space in general. It will provide more validation of the space and people will become more open to digital currencies like Bitcoin.

      Stable coins like Facebook’s are really the disruptor here and we should start seeing fruition of some of the crappier coins, as they do not participate in the rally. There is still a need for decentralized coins and coins like BAT and Litecoin may find a niche.

  2. alexander katz

    Hey, would love it if you guys did a post or a podcast on taking profits! Lack of patience had me entering too early as the bear market continued, I would like not to make the same mistake again during the bull, especially with how explosive this market can get at the extreme price ranges.

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