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Not Much Action

October 14, 2019, 8:31 AM Mike McAra

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

More time has passed but Bitcoin has not shown clear signs of more depreciation. At the same time, the currency has actually been trading relatively flat. This might suggest a rebound or a further dip. We are inclined to view the situation one way.

Nothing much has happened in the last couple of days. And this in spite of supposedly bearish news that a Bitcoin ETF has been turned down by the SEC. In an article on CoinDesk, we read:

Bitcoin (BTC) continues to look north and may rise to $9,000 in the short-term despite a U.S. regulator’s decision to reject a bitcoin exchange-traded fund (ETF) proposal.

The U.S. Securities and Exchange Commission (SEC) on Wednesday announced that the ETF proposal filed by Bitwise Asset Management in conjunction with NYSE Arca did not meet the necessary requirements to prevent market manipulation and illicit activities.

The top cryptocurrency by market value hit a two-week high of $8,708 on Bitstamp and retreated to levels below $8,550 before CoinDesk reported the SEC’s decision at 21:45 UTC yesterday.

OK, so the situation is as follows: Bitcoin has just seen a piece of negative news – the rejection of another Bitcoin ETF might be considered negative for the digital currency. The second piece of the puzzle is that the currency has not gone down visibly. This could mean one of two things. First, Bitcoin is holding up quite well in spite of the news. This would be relatively bullish. Another interpretation would be that the news is not yet reflected in the price. So which explanation is it? There’s never any certainty, but we are leaning toward one explanation.

Weak Signs

On the short-term BitStamp chart, the situation is unchanged in terms of the price movement.

Bitcoin chart BitStamp

Recall our previous 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.

Situation Remains Bearish

The long-term Bitfinex chart, we are seeing the same indications.

Bitcoin chart Bitfinex

Our previous commentary:

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.

Summing up, in our opinion short speculative positions might be favorable at the moment. The lack of depreciation is not a bullish sign at this moment.

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

Thank you.


Mike McAra
Bitcoin Trading Strategist
Bitcoin Trading Alerts

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