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Appreciation Wavers

October 17, 2019, 6:06 AM Mike McAra

In short: speculative short positions, target at $3,200, stop-loss at $9,300.

There has been no visible move up in the last couple of days. Does this mean that the conditions are becoming more bearish?

The lack of appreciation has caused more negative stories on Bitcoin propagate through the media. For instance, the short-term descriptions of the currency might have become more bearish. In an article on CoinDesk, we read:

Bitcoin’s weekly Chaikin Money Flow index is reporting the strongest bearish bias since February. Other weekly chart indicators are also calling a deeper drop, possibly to levels below recent lows near $7,750.

The daily chart indicators suggest the corrective bounce has ended and sellers are again gaining strength.

The ongoing risk aversion in the global financial markets could weigh over bitcoin.

The short-term bearish case would weaken if prices rise above the 200-day average, currently located above $8,700, although, as of now, that looks unlikely.

It seems that the short-term situation is completely changed, at least if you were to take in the stories circulating in the media. Naturally, this begs the question whether the situation has actually changed. And we have a specific take on that.

Weak Move Up Denied

On the short-term we are seeing depreciation in the wake of a weak move up.

Bitcoin chart BitStamp

Recall our recent comments:

The depreciation changes the short-term outlook. First of all, this is the most important move down in some time, which could make the situation bearish. But the more significant, in our opinion, action is the breakdown below the 1.618 Fibonacci extension, which also coincides with the May-June local high. The move down below this level is reinforced by the explosive volume. All this makes the still not confirmed breakdown below the extension very important. It could become even more important if we see a confirmation of the breakdown, for instance if Bitcoin stays below this level for longer.

We have now redrawn the Fibonacci retracements based on the December 2018 – June 2019 move up. Based on these levels, we see that the recent comments are reinforced by a breakdown below the 38.2% retracement. This is definitely a bearish development.

The main point here is that Bitcoin is still at the new 50% Fibonacci retracement. This means that the currency has not moved from this level almost at all (at least if you compare it with typical larger moves in Bitcoin). The main implication here is that the breakdown below the 38.2% retracement now looks confirmed.

Our previous observations remain unchanged in that Bitcoin has not broken back above the 38.2% retracement. We are seeing a move away from the 50% retracement but this move has not been strong enough to shift the short-term outlook. What’s important here is the fact that looking at the RSI, we see that the situation has gone to the place where Bitcoin is no longer oversold.

The situation is exactly as it was a couple of days ago. Bitcoin is after a weak move to the upside and the breakdown below the 50% Fibonacci retracement level is now invalidated. This is slightly bearish. The RSI out of the oversold area is also supporting this point of view. But the bullish indications are pretty weak as the move is not pronounced and the volatility is also weak.

Bitcoin has gone down, which is a slightly bearish sign, but mostly because of the fact that we have now seen a small move up which was quickly invalidated. The currency is now right at the 50% Fibonacci retracement level. In a way, this is similar to what we saw some time back, only more bearish. We haven’t seen an important breakdown but the situation is more bearish now that it was previously.

More Depreciation Possible

On the long-term Bitfinex chart, we see not that much change at all.

Bitcoin chart Bitfinex

In our previous remarks, we noticed:

We have now seen a first move below the 61.8% Fibonacci retracement in some time. Even more importantly, this move down is a lot more pronounced than previous moves to or below this level. Because of the magnitude of the move, the extent of the breakdown below the support and the elevated volume levels, we could potentially view the breakdown as confirmed. Bitcoin has also gone below our stop-loss level at $8,600. All this suggests that we might have seen an important shift in the long-term outlook, or at least the medium-term one. However, there are still at least two factors which should give us pause before declaring the situation a bearish one. Firstly, we would still prefer to wait a couple of days for an additional confirmation. The second factor is that the RSI has just turned oversold. This might suggest that we are in for a pause in the move down. If we see a strong rebound from here, this could change the implications once again to quite bullish ones. Stay tuned for the outcome!

The previous comments still hold. Actually, the situation has now become even more bearish as we have seen several daily closes below the 61.8% retracement. Also, the RSI is less oversold that it was previously but it still is oversold. So, the factors are becoming increasingly bearish. Our take now is that if this persists, we will have a very bearish picture on our hands but we would still like to see a couple of daily closes below the most recent important retracements.

Given the amount of time after the breakout, the magnitude of the move and the nature of the current period of trading sideways, it would seem that the breakdown below the 61.8% retracement is now confirmed. Taken together with the short-term implications, this means that the outlook for Bitcoin has become bearish now, in our opinion. We are adjusting the hypothetical positions accordingly.

Relative to the short-term outlook, the long-term situation is more bearish. The currency is firmly below the 61.8% Fibonacci retracement level, which suggests that the shift to bearish is still very much in place. Our take is one that Bitcoin is still in the process of possibly forming a bottom. This could take an extensive amount of time to be completed. If we do not see a strong rebound here, the situation might remain unchanged and more depreciation could follow.

And we have not seen a strong rebound. This, along with the fact that the breakdown below the 61.8% Fibonacci retracement still holds suggest that in spite of the lack of depreciation, the situation remains bearish. At the same time, it is quite possible that the ETF news is not reflected in the price or is not driving the market just now. At this moment, the overall outlook looks bearish.

Not only have we not seen a strong rebound so far, but actually the recent move up was just reversed. This was more important from the short-term perspective but what about the long-term perspective? The main thing is that the recent action hasn’t really been that visible. If we take a step back and look at the picture, then we see that the main suggestion from the current situation might be that there has been no invalidation of the breakdown below the 61.8% Fibonacci retracement level. The next move to observe is a potential move to around $6,700 and how Bitcoin might behave there.

Summing up, in our opinion short speculative positions might be favorable at the moment. Depreciation has erased most of the recent weak move up and more declines could follow.

Trading position (short-term, our opinion): short positions, target at $3,200, stop-loss at $9,300.

Thank you.

Regards,

Mike McAra
Bitcoin Trading Strategist
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