Bitcoin – Order Flow Points to Higher Prices

Bitcoin pauses after pushing through the 9350 support / resistance level.  This is where the market is in a transitional state where traders and investors are still not convinced the move is real.

The purpose here is to go over what we are looking for in order for us to take a swing trade long, or add to inventory.

Stocks continue to grind higher and sentiment is changing from the doom and gloom to optimism and complacency.  These are general sentiment indicators that occur at pivot points in the market.

So how do you position for a pullback and is there anything worth buying here?

Bitcoin

BTCUSD

The risk after an impulsive swing higher is that buy side orders exhaust giving back much of the bullish rally.  We are not seeing that here, actually quite the opposite.

This is the third day of consolidation at the previous support level which is holding up as support here.   Markets that are overbought, tend to fall apart quickly after solid swings higher.

Looking back at the June high, the market gave back gains in one day of selling pressure.  Though it found support the secondary swing higher also printed an outside candle and gave back the gain and more over the next week.

We are not seeing that type of selling pressure here.  The market is finding bids at every retest of the 9350 level and this implies order flow is still strong to the buy side. What we need to see now is confirmation.

Depending on your trading strategy and time frame, a decisive  push through 10,500 would go a long way in confirming this is part of a broader move higher.  This is the last area where buy order were met with selling pressure.

However, what makes this a likely area to take out in the next move is the accumulation in the lower 8k area.  Sure there are some taking their profits here, but there are also many that sold in the 10k-10,500 area, that are thinking this may be the last time I get a chance to buy my inventory back lower.

This type of sentiment is what can fuel the next leg higher.

From a shorter term perspective, the consolidation here provides a potential aggressive swing trade setup, depending on how the daily candle closes.  One thing we tell our swing trade members is to wait for the close or just prior to it.

Jumping in too early can lead to getting stopped out.  This is a bullish continuation setup we will consider later today, but it is an aggressive trade so risk has to be adjusted accordingly.

IF the market pulls back into the 8500-9000 area we would increase our risk depending on the type of signal we see evolve.  This is an area which should attract buyers that were selling the range between 7800 & 8500.

Regardless so far the market is holding up, and this move is indicative of how broader moves start.  We saw this same type of swing back in January.

S&P

The stock market pushed a new high and market sentiment is becoming complacent as we mentioned on our podcast yesterday.   Put / Call ratio is around 65% implying that investors are making more bullish bets than bearish ones, and are not hedging their gains by buying Puts.

With a de-escalation in the trade war, an accommodating Fed, and earnings coming in better than expected, the market continues to grind higher.  This is where the risk lies.

TLT

The TLT which is an ETF that tracks the 20 Year Treasury Bond, is coming off its previous high.  This is a sign that the market is flowing out of safe haven assets into more risk adverse equities like stocks.

Still early, but this is telling on how sentiment when from “impending recession” to “looks like a pasture of dandelions.

VIX

The VIX is also near the 12.0 level which is a market that is not expecting a large selloff in the near term.  Investors are not really hedging their with buying Puts here, but we would like to see sentiment get a little more complacent.

All in all the market is becoming more an more complacent.  Not a lot of talk about recession as the perma bears go back into their caves.  Not a lot of talk about how Tariffs are going to destroy the economy as it does not appear to be the case.

In short the market is grinding higher and becoming more complacent which is what needs to happen for a significant pullback to occur.   The rally from 2017 till now, was much due to a change in policies from a tax and regulation standpoint.

The market priced this in so what catalyst is going to push the market higher or lower from here?

S&P

Weekly

This is a broader consolidation period of the market that has rallied on the back of corporate tax breaks and deregulation.  Markets need to consolidate and do not forget we enter an election cycle this year and markets do not like uncertainty.

So the risk is to the downside in the mid term, at least for a healthy correction.  A pullback into the 2500-2600 is what we expect, but we do not discount a push to retest the lows.

 

S&P

Daily

The swing higher is right into a bullish fake-out zone in the shorter term.   We are in the heart of earnings season and there are still some large players like Apple, and Facebook among others left to report.

However, most of the good news is already priced in (look at Apple stock) and the risk is to the downside.

From a support and resistance perspective, 3050 and 3018 are the key levels for shorter term bullish and bearish action.  I would not be surprised to see the S&P hit 3100 before the broader correction takes place as I mentioned last week on our podcast.

However this is an area we want to consider hedging our positions or fading the rally with a short position in the Q’s or IWM.  For transparency we are already short the IWM.

With that said, there are some quality stocks worth buying a small position here.  As we mentioned ABBvie (ABBV), Cisco (CSCO), CVS or other dividend paying stock are worth looking at.

Some of the cloud and SAAS stocks are also beaten up and worth taking a look at.  For the market to rally higher the Healthcare, Cloud / SAAS, and Energy stocks need to rally, so this is where I would be looking to buy at these levels.

Summary

Bitcoin is in a position to push higher make no doubt about it.  This is not a bearish market it was a market that got ahead of itself and consolidated over a period of months.  Do not confuse consolidation with Bear.

Stocks are still looking like they want to make another leg up, but the market is becoming overly complacent and the longer the complacency continues without a healthy correction, the larger the correction will be.

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