Lets Talk ARKK Weekly Baby! Capitulation!
One of the most important chart patterns is the buying and selling climax. A classic example of the pattern, in the form of a potential selling climax (S/C) is showing up in the daily and weekly charts of ARKK. Climaxes are exhaustion patterns, they develop as the last needful seller (weak hands) capitulates and hits the bid. Sellers are essentially exhausted.
1) Selling climaxes exhaust the available supply and often mark an important change in the market state.
a. Even if they don't mark the end of a trend, they often lead to a period of consolidation. It is not unusual to see a trading range develop after the completion of the secondary test.
b. Climaxes are fractal, appearing in literally every time frame.
c. Climaxes appear after a long period of trend.
2) Climaxes typically appear concurrently with terrible news flow.
a. Late last week I overheard an obviously frustrated fund manager on Bloomberg state that "I'm liquidating and going back to the real fundamentals." Down nearly 60% over the course of the last year he, and many other investors were finally throwing in the towel.
3) Climax patterns occur on extremely heavy volume.
a. A clear reversal bar (often a key reversal) is typically evident.
b. But modern climaxes can take several days to complete.
c. Often the liquidated shares are distributed from weak hands, to strong hands.
d. The new buyers are not necessarily long term investors and they often take advantage of the reaction rally to take trading profits.
4) There is often a sharp rally just prior to the selling climax. Wyckoff labeled this as preliminary demand (P/D), a point where strong handed longs are beginning to accumulate shares. The P/D is an alert to begin monitoring for a selling climax. In the case of ARKK, this P/D warning did not occur.
5) Immediately following the S/C is the automatic rally (A/R). Since sellers have been exhausted, the A/R can often cover significant ground. Buyers of the selling climax often use this rally to sell a portion of the position built during the climax.
6) In the case of ARKK, there is a micro test of the S/C. The successful test set the stage for the A/R.
7) A much larger secondary test separated in time must be completed before the S/C can be trusted.
Its important to note WHERE the behavior is occurring. In past entries, I have talked about building confluences of support and resistance to create zones. These zones can then be monitored for patterns that are consistent with a change in trend.
1) Price is resting at the bottom of both short term and intermediate trend channels. I generally view channel tops and bottoms as more reliable indicators of overbought and oversold than most of the momentum suite of indicators. The two channel bottoms formed a support confluence in the 61.81 to 63.63 area.
2) There is a clear three wave move (A-B-C) that can be used to generate Fibo extension targets. I use the A-B-C pattern to generate three targets, 1, 1.382, 1.618%. The distance is then projected from the top of C. In this case the tool generated equality with the first wave at 63.38. You can use the Trend Based Fib Extension tool in MV to generate the calculation.
3) The three levels (two channels and 1 Fibo) produce a support confluence in the area between 61.81 and 63.38. This is the zone where the S/C occurred.
Most momentum oscillators are deeply oversold. I have included the weekly RSI to illustrate. Note the curl higher.
Odds are good that the selling in ARKK is essentially exhausted now. My guess, given the broader backdrop, is that it will form a trading range lasting several weeks, maybe months that will allow strong hands to redistribute shares before beginning a fresh markdown. But, opinion not withstanding, I will follow the evidence and clues as they build.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Capitulation
BTC Obvious BartThis is the most obvious bart in all of bitcoin history. Dead volume, sudden spike in volume and price, then dead volume and slowly bleeding price with a curving down RSI. Really if you don't understand how this space is manipulated by whales and exchanges to liquidate both shorts and then longs, then you should move over to forex or something.
Will BTC really capitulate with a long wick?I know that there is a lot of controversy among traders at comparing the current bear market with the 2014/2015 bear market, but studying the historical behavior of BTC in previous markets may provide a lot of insight in the current trend. I myself did not experience the previous bear market personally.
In the 2014/2015 BTC bear market the weekly RSI of the first capitulation went down to 30.4 and the second capitulation went down to 27.5. In the current bear market, the recent low in BTC brought the weekly RSI down to 29.
The question everyone is asking: will BTC have another dip from here and how low will the price and the RSI go?
If BTC falls rapidly it might create a lower low in the weekly RSI , but it is NOT to say that the price will create a lower low, or that it will capitulate with a long wick candle as in 2015. My reasoning behind this is that the market today is larger and more liquid than in 2014/2015, and also, everyone is looking to buy the lows in a "long wick candle capitulation". The buzzword of the day is "capitulation", which makes me question if we would ever see that type of capitulation again in this bear market.
If we compare the daily RSI of 2014/2015 with 2018/2019 there are interesting similarities:
After the first capitulation in the 2014 bear market (look chart below), BTC created an failed ascending triangle that did not break to the upside. This created a rising support trendline in the daily RSI that finally broke through downward.
In the current bear market, the daily RSI created a rising support trendline that looks scary similar to the one in 2014/2015 (between the two capitulation points). BTC formed a (sort of) symmetrical triangle that broke to the downside, however we might be just in the process of making an ascending triangle like in 2014/2015. (illustrated by the orange doted lines in the picture below)
Conclusion
No one can predict how BTC will bottom in this bear market. I think most traders expect it to bottom with a long wick candle, thus BTC may act contrary to the belief of the majority, as markets always do.
Please Like if you found this somewhat helpful.
