BTC - Red flags to watch
I have 4 concerns with the current BTC rally - call them skepticisms - even though I rotated cash into crypto after my last post (tradingview.com/chart/BTCUSDT/ukyZrgEe/) with a short term price target is 50.5-51.2K. and long term target of 86K.
1. BTC dominance continues to struggle.
2. BTC has not corrected above the .618 fib (it held the .5 fib which is encouraging)
3. New whales are not being created - my research shows that to be a critical metric.
4. Overall stock market is overheated and could correct - can a big BTC rally occur during a stock market correction?
I'm constantly trying to have my pulse on #4 (to clear out of crypto, and short the market). The market indexes are strong, but I'm looking for weaknesses within that strength as a leading indicator. The chart shows a potential red flag. Dow Theory says the Index shouldn't go up without a similar rise in the transportation index. At first blush, there's a huge divergence (red arrow) that would definitely be a red flag. Or, did the transportation index simply overheat during the pandemic relief, overshoot it's normal trajectory (green arrow), and has come down to settle back in to it's normal trajectory?
My instinct is that, like most of the global supply chain during the pandemic relief, transportation prices reflected the temporary overdemand for goods (similar to lumber). You can see the current transport index value returned nicely to a plausibly drawn trendline given no pandemic relief.
There's another positive indicator that supports my instinct. The red circles that are highlighted are an uncommon reversal phenomenon. A reverse-up signal is one where a 1 month low occurs, and within 10 days establishes a 1 month high. This happened on the S&P 1500 transport index (I didnt know the S&P 1500 symbol on Tradingview so I used the DJIA trans index to demonstrate the concept). This reversal makes sense as the transport indexes quickly retraced after getting overheated, and support at the "normal" trendline" reversed the momentum. Historically, this is very favorable for continuation of the market trend.
However....I show a snippet of the Nasdaq transportation index. It doesn't look so good. It is below the 50 and 200 dma, the daily ema ribbon has crossed bearish, and the 50 dma is on a trajectory to do a death cross with the 200 dma. I can not explain why the S&P and DJIA transport indexes are much healthier, but something I'll be continuing to investigate & monitor. A breakdown of the S&P or DJIA transport indexes with a continued increase in the index price would be a big concern (well opportunity that I'm searching for).
There's also been some recent discussion about how the US Dollar (DXY) rising supports a BTC rally. The economics of the inverse relationship make sense. As people flock to $$'s, those $$'s typically come from selling investments. If $$'s are sold into investments their value tends to go down. Look at the history of DXY versus BTC and the general relationship is clear - although not perfect. Right now, DXY has broken out of a lowering channel and has been moving up. Is it a longer reversal upwards, and does this conflict with a BTC rally? Check out Mayfair Ventures latest video - its a good watch. I tend to agree that the current DXY upward move is part of and ABC correction and will resume lower. Again, its an indicator that does not favor a BTC rally that needs to be watched.
1. BTC dominance continues to struggle.
2. BTC has not corrected above the .618 fib (it held the .5 fib which is encouraging)
3. New whales are not being created - my research shows that to be a critical metric.
4. Overall stock market is overheated and could correct - can a big BTC rally occur during a stock market correction?
I'm constantly trying to have my pulse on #4 (to clear out of crypto, and short the market). The market indexes are strong, but I'm looking for weaknesses within that strength as a leading indicator. The chart shows a potential red flag. Dow Theory says the Index shouldn't go up without a similar rise in the transportation index. At first blush, there's a huge divergence (red arrow) that would definitely be a red flag. Or, did the transportation index simply overheat during the pandemic relief, overshoot it's normal trajectory (green arrow), and has come down to settle back in to it's normal trajectory?
My instinct is that, like most of the global supply chain during the pandemic relief, transportation prices reflected the temporary overdemand for goods (similar to lumber). You can see the current transport index value returned nicely to a plausibly drawn trendline given no pandemic relief.
There's another positive indicator that supports my instinct. The red circles that are highlighted are an uncommon reversal phenomenon. A reverse-up signal is one where a 1 month low occurs, and within 10 days establishes a 1 month high. This happened on the S&P 1500 transport index (I didnt know the S&P 1500 symbol on Tradingview so I used the DJIA trans index to demonstrate the concept). This reversal makes sense as the transport indexes quickly retraced after getting overheated, and support at the "normal" trendline" reversed the momentum. Historically, this is very favorable for continuation of the market trend.
However....I show a snippet of the Nasdaq transportation index. It doesn't look so good. It is below the 50 and 200 dma, the daily ema ribbon has crossed bearish, and the 50 dma is on a trajectory to do a death cross with the 200 dma. I can not explain why the S&P and DJIA transport indexes are much healthier, but something I'll be continuing to investigate & monitor. A breakdown of the S&P or DJIA transport indexes with a continued increase in the index price would be a big concern (well opportunity that I'm searching for).
There's also been some recent discussion about how the US Dollar (DXY) rising supports a BTC rally. The economics of the inverse relationship make sense. As people flock to $$'s, those $$'s typically come from selling investments. If $$'s are sold into investments their value tends to go down. Look at the history of DXY versus BTC and the general relationship is clear - although not perfect. Right now, DXY has broken out of a lowering channel and has been moving up. Is it a longer reversal upwards, and does this conflict with a BTC rally? Check out Mayfair Ventures latest video - its a good watch. I tend to agree that the current DXY upward move is part of and ABC correction and will resume lower. Again, its an indicator that does not favor a BTC rally that needs to be watched.
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