The Crpyto Rules are beginning to Change
TLDR
I am making the case we are transitioning into a bull market. Remember things act differently in bull markets and bear markets. You can dig into Bulkowski’s chart patterns and see that some patterns break to the upside some 60%, other 75%, etc., the odds of throw backs, average performance and odds of over/under performance. When we are bull expect bullish over-performance, expect biased moves to the upside, expect bearish patterns to break upwards as they are predicted to do 30% of the time, or to under-perform on their breaks to the downside. Expect aggressive buying of the longer-term moving averages.
Motivation for this Post
I was in the private chats with my brother and he told me he was going to go short with a tight stop due to the bearishness he was seeing on the 4h chart with the oscillators (RSI/Stocastic RSI/MACD) What happened? He got wicked into a short and then stopped out. Opened a new position and he got wicked in and stopped out and he was… annoyed… at himself for giving back his gains from grabbing that pump up. He tried to blame the fact he made his profitable move as an “moving average” play and he was trying to make an “oscillator” trade when he goes short.
One fact of the matter is his brain hasn’t fully transitioned out of the bear market mentality. We are no longer in a bear market, we have had a serious case of absorption within the accumulation phase as Wychoffian theory would suggest.
We know a 100m of tether was put into place across three exchanges and spiked the price, and about 500m worth of shorts across exchanges were blown out. No matter what theory you ascribe to that move you need to understand that it was a technically sound trade. A lot of indicators had lined up and the reason this move wasn’t “wicked to death” by a powerfully opposite reaction was because of the timing of the move.
The Bullish Case
The first thing to look at are the moving averages. The easiest way to see if we are in a bull or bear market is to throw on a weekly or monthly chart and see if the moving averages are stacked in a bullish or bearish order. Markets that can trend for a long time are great for this, sometimes individual stocks not so much. What does BTCUSD say from then and now? Last transition to bear into bull price action found support on the 200 EMA and then got rejected at the 50/100 EMAs and then fell back down to consolidate.
On the main chart, below the price action we see what is happening with the On Balance Volume EMAs (which I have recently started studying). These things are great, because you can use the OBV like an oscillator when you are looking for bearish and bullish divergences but you can also look for bullish and bearish crosses like a moving average or MACD. What do we see in both the 2014-15 bear market and this one?
The 10 period OBV EMA crossed over the 20, and when the price action was moving down the OBV EMAs was divergent, as both were trending upward. Under those circumstances the price action confirmed the 200w EMA as support and then there was a parabolic advance. Absorption/Accumulation was complete after that retest. The 2019 side of the chart has a vertical red line highlighting a very key detail: the bullish OBV EMA cross happened BEFORE the pump and against the 200w EMA acting as resistance. The volume situation shows that strong hands have been buying.
Below is a zoom in of our most current absorption phase. The black lines show the OBV EMAS can work as an oscillator with hidden bearish divergence from peak to peak. The purple line shows how the OBV EMA can act within a single uptrend to signal reversal. The blue arrow shows where the EMAs assumed their proper bullish order and the uptrend was on the move. Notice the OBV EMAs were divergent free once the bearish divergence performed.
Below is a chart of the RSI/Stochastic/Stocastic RSI situation and these are ordered by volatility. The blue arrows show a run up of the price and RSI; the RSI goes over 50 and then dips below a bit as price consolidates and when it comes above 50 again the term parabolic advances commence. The purple lines show the bearish divergence that lead to the weekly RSI to go below 50 and stay there. This pattern shows whether you are in a absorption/accumulation (the RSI breaking 50 and then consolidating), a bull market (the parabolic advances) or a bear market (post-bearish divergence performing). The Stocastic also shows some respect of the 50 line in bull markets, running aross the top of the chart. The stochastic RSI here is better when you look for bullish or bearish divergence to signal a long and powerful move when combined with the Stoc and RSI (I didn’t bother to draw those, the chart get busy, and its best to use the D line because it hits zero less often).
Or you could look at the monthly chart
The shorts chart shows there is still a lot of fuel for another pump to the upside. The candles track the shorts and the black lines shows the dollar value of shorts. The shorts got squeezed out and now bears are shorting at a higher level before the squeeze. The increase in price means that there are now more dollars short than before. Madness. Just because another shakeout is probable doesn’t mean it will be retracing to the 200w EMA. We could break the 100w EMA with power and retrace and consolidate there, not the 200. Shorters could again be BTFOd. (I am not qualified to give financial advice, this is a tricky situation)
I am making the case we are transitioning into a bull market. Remember things act differently in bull markets and bear markets. You can dig into Bulkowski’s chart patterns and see that some patterns break to the upside some 60%, other 75%, etc., the odds of throw backs, average performance and odds of over/under performance. When we are bull expect bullish over-performance, expect biased moves to the upside, expect bearish patterns to break upwards as they are predicted to do 30% of the time, or to under-perform on their breaks to the downside. Expect aggressive buying of the longer-term moving averages.
Motivation for this Post
I was in the private chats with my brother and he told me he was going to go short with a tight stop due to the bearishness he was seeing on the 4h chart with the oscillators (RSI/Stocastic RSI/MACD) What happened? He got wicked into a short and then stopped out. Opened a new position and he got wicked in and stopped out and he was… annoyed… at himself for giving back his gains from grabbing that pump up. He tried to blame the fact he made his profitable move as an “moving average” play and he was trying to make an “oscillator” trade when he goes short.
One fact of the matter is his brain hasn’t fully transitioned out of the bear market mentality. We are no longer in a bear market, we have had a serious case of absorption within the accumulation phase as Wychoffian theory would suggest.
We know a 100m of tether was put into place across three exchanges and spiked the price, and about 500m worth of shorts across exchanges were blown out. No matter what theory you ascribe to that move you need to understand that it was a technically sound trade. A lot of indicators had lined up and the reason this move wasn’t “wicked to death” by a powerfully opposite reaction was because of the timing of the move.
The Bullish Case
The first thing to look at are the moving averages. The easiest way to see if we are in a bull or bear market is to throw on a weekly or monthly chart and see if the moving averages are stacked in a bullish or bearish order. Markets that can trend for a long time are great for this, sometimes individual stocks not so much. What does BTCUSD say from then and now? Last transition to bear into bull price action found support on the 200 EMA and then got rejected at the 50/100 EMAs and then fell back down to consolidate.
On the main chart, below the price action we see what is happening with the On Balance Volume EMAs (which I have recently started studying). These things are great, because you can use the OBV like an oscillator when you are looking for bearish and bullish divergences but you can also look for bullish and bearish crosses like a moving average or MACD. What do we see in both the 2014-15 bear market and this one?
The 10 period OBV EMA crossed over the 20, and when the price action was moving down the OBV EMAs was divergent, as both were trending upward. Under those circumstances the price action confirmed the 200w EMA as support and then there was a parabolic advance. Absorption/Accumulation was complete after that retest. The 2019 side of the chart has a vertical red line highlighting a very key detail: the bullish OBV EMA cross happened BEFORE the pump and against the 200w EMA acting as resistance. The volume situation shows that strong hands have been buying.
Below is a zoom in of our most current absorption phase. The black lines show the OBV EMAS can work as an oscillator with hidden bearish divergence from peak to peak. The purple line shows how the OBV EMA can act within a single uptrend to signal reversal. The blue arrow shows where the EMAs assumed their proper bullish order and the uptrend was on the move. Notice the OBV EMAs were divergent free once the bearish divergence performed.
Below is a chart of the RSI/Stochastic/Stocastic RSI situation and these are ordered by volatility. The blue arrows show a run up of the price and RSI; the RSI goes over 50 and then dips below a bit as price consolidates and when it comes above 50 again the term parabolic advances commence. The purple lines show the bearish divergence that lead to the weekly RSI to go below 50 and stay there. This pattern shows whether you are in a absorption/accumulation (the RSI breaking 50 and then consolidating), a bull market (the parabolic advances) or a bear market (post-bearish divergence performing). The Stocastic also shows some respect of the 50 line in bull markets, running aross the top of the chart. The stochastic RSI here is better when you look for bullish or bearish divergence to signal a long and powerful move when combined with the Stoc and RSI (I didn’t bother to draw those, the chart get busy, and its best to use the D line because it hits zero less often).
Or you could look at the monthly chart
The shorts chart shows there is still a lot of fuel for another pump to the upside. The candles track the shorts and the black lines shows the dollar value of shorts. The shorts got squeezed out and now bears are shorting at a higher level before the squeeze. The increase in price means that there are now more dollars short than before. Madness. Just because another shakeout is probable doesn’t mean it will be retracing to the 200w EMA. We could break the 100w EMA with power and retrace and consolidate there, not the 200. Shorters could again be BTFOd. (I am not qualified to give financial advice, this is a tricky situation)
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.