Tops Versus Consolidation Periods + Expecting The Unexpected
Updated
Here's a quick Bitcoin update. I was fiddling around with my charts today, since obviously price action has been quite lackluster for Bitcoin over the last couple of months. Again, this is something I talked about even before the summer began. I suggested that the market could move sideways for months, during which some alts could do well, considering the situation with Bitcoin dominance. But this analysis isn't about alts.
Drawn here in yellow are the structures each "top" created throughout the bear market. Technically, the trend is still down, since Bitcoin has not made a new high. Neutral at best. As you can see, most of Bitcoin's tops were fairly obvious. Most were preceded by a clear rising wedge, and then either formed a perfect head and shoulders OR a double top. On the more long term tops (January 2018 and June 2019), Bitcoin formed a descending triangle pattern, without breaking the structure at all.
Today, things are actually quite different. Even though one could argue that Bitcoin is creating a smaller descending triangle here, if you zoom in, Bitcoin made a new high within the overall structure, and has since started to show some weakness. This could indeed be part of yet another head and shoulders top, but it's dragged on for so long with altcoins rallying one after another (with some even breaking out from their long term price ranges), that it's wise to consider that this is a continuation pattern. And this curved consolidation structure has occurred before in bullish trends (note the lefthand portion of the chart, during the 2017 run).
In the past, when the market has created these curved structures, it has resulted in a quick dump, followed by a dramatic price rise. In markets, there often needs to be a quick test of major support, since demand starts to weaken towards the end of consolidation. Market participants must be shown that price wants to continue up, so most won't buy until the strong test of support and then a breakout of the price range. But can a breakout occur without such a test of support? It certainly can. Bitcoin broke clean out of the curved consolidation period that formed after the March liquidity event. The market is waiting right now for this move, regardless of whether it dumps first or not. This would explain the high open interest. Most observant analysts and skilled traders know something like this is likely to happen, while retail gambles on which way they think is likely first. But if all the "smart traders" are waiting to buy at lower levels, they might miss out. I love the psychological aspect of this, which is why I keep posting analysis and observing this ridiculous market.
Zoomed in, here are the two scenarios I'm looking at. Down first seems more likely, given Bitcoin's history, but it also likes to surprise. So I'd be prepared for both.
In summary:
Bitcoin consolidation could easily end with a liquidity dump, perhaps towards 7.7K or even briefly lower. If this happens, it may be seen as a great buying opportunity. The next bullish price target for me would be around 11.6K. Not sure Bitcoin can make a new high given the current economic situation.
Invalidation of the bullish picture will occur if Bitcoin breaks and holds below the 50 MA on the monthly chart (near 5.8K), as I've described in my recent video. The 9 month EMA should also generally hold during a bullish trend, and that lies only around 8.6K. So I'd expect any large dip below that level to be aggressively bought. If we see weakness below those levels, we could be looking at another year or so of sideways for cryptocurrencies, until the global economy sorts itself out.
This is not financial advice! Just my observations, and they're meant for speculative and educational purposes only. Thanks for reading.
-Victor Cobra
Drawn here in yellow are the structures each "top" created throughout the bear market. Technically, the trend is still down, since Bitcoin has not made a new high. Neutral at best. As you can see, most of Bitcoin's tops were fairly obvious. Most were preceded by a clear rising wedge, and then either formed a perfect head and shoulders OR a double top. On the more long term tops (January 2018 and June 2019), Bitcoin formed a descending triangle pattern, without breaking the structure at all.
Today, things are actually quite different. Even though one could argue that Bitcoin is creating a smaller descending triangle here, if you zoom in, Bitcoin made a new high within the overall structure, and has since started to show some weakness. This could indeed be part of yet another head and shoulders top, but it's dragged on for so long with altcoins rallying one after another (with some even breaking out from their long term price ranges), that it's wise to consider that this is a continuation pattern. And this curved consolidation structure has occurred before in bullish trends (note the lefthand portion of the chart, during the 2017 run).
In the past, when the market has created these curved structures, it has resulted in a quick dump, followed by a dramatic price rise. In markets, there often needs to be a quick test of major support, since demand starts to weaken towards the end of consolidation. Market participants must be shown that price wants to continue up, so most won't buy until the strong test of support and then a breakout of the price range. But can a breakout occur without such a test of support? It certainly can. Bitcoin broke clean out of the curved consolidation period that formed after the March liquidity event. The market is waiting right now for this move, regardless of whether it dumps first or not. This would explain the high open interest. Most observant analysts and skilled traders know something like this is likely to happen, while retail gambles on which way they think is likely first. But if all the "smart traders" are waiting to buy at lower levels, they might miss out. I love the psychological aspect of this, which is why I keep posting analysis and observing this ridiculous market.
Zoomed in, here are the two scenarios I'm looking at. Down first seems more likely, given Bitcoin's history, but it also likes to surprise. So I'd be prepared for both.
In summary:
Bitcoin consolidation could easily end with a liquidity dump, perhaps towards 7.7K or even briefly lower. If this happens, it may be seen as a great buying opportunity. The next bullish price target for me would be around 11.6K. Not sure Bitcoin can make a new high given the current economic situation.
Invalidation of the bullish picture will occur if Bitcoin breaks and holds below the 50 MA on the monthly chart (near 5.8K), as I've described in my recent video. The 9 month EMA should also generally hold during a bullish trend, and that lies only around 8.6K. So I'd expect any large dip below that level to be aggressively bought. If we see weakness below those levels, we could be looking at another year or so of sideways for cryptocurrencies, until the global economy sorts itself out.
This is not financial advice! Just my observations, and they're meant for speculative and educational purposes only. Thanks for reading.
-Victor Cobra
Note
Zoomed even further in, you can see a shorter term downtrend that has been cleared and found as support. Perhaps this is significant. Perhaps not. Note
Looks like the linear breakout did have some merit after all. Still within the broader trading range which explains the meager volume. The breakout on ETH is much more serious, so that's where the volume is going currently. Note
Here are a couple of scenarios I drew earlier this month. it looks like it wants to follow something like the yellow for now. it can extend for quite a while, particularly if it gets near the 10K level and is once again rejected. If 10.2K breaks, I expect a quick move towards $10.8. The long term downtrend exists around there. Stocks are looking droopy, so wouldn't be surprised to see this pump fade. Encouraging to see a slight decoupling today, but not enough data to decide if it means anything yet. For me to consider a big drop here, volume would have to drop over the next hours or so, showing weak follow-through from buyers.
Note
Well, clearly preparing for either scenario was a good idea, since Bitcoin decided to simply move up without testing those lower levels. I did say this was a possibility, and that the pattern Bitcoin had been forming was more indicative of continuation, rather than a top. More updates to come! I believe we're close to entering the next phase in the crypto market cycle.Note
Looks like the curved consolidation patterns continue....Note
Indeed....Note
Pretty amazing. This consolidation may end a little differently - perhaps we get a big shakeout to test liquidity near the 10K zone. A little too early to tell, but this structure seems slightly more in danger of breaking down first. Note
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