It’s my belief that probabilities are high that we go lower and that this next low could be the major bear market low or at least the 2018 low. If not late July then late September, but I’m preparing to short this rally and buy the next low for a long term bullish swing trade.
I am not convinced this current rally has staying power. However, I will explain why I believe that and what would change my mind.
First let me explain the foundation of the bearish case
Can I be wrong? What is the bullish case?
Yes, of course. This is why risk management is more important than analysis. I’ve done well since December, but the market has fooled me at times and generally I took profits too early several times. Cycles are not perfect and sometimes you get a slow turn.
If the market continues to march higher I will eventually become bullish. The big key to this is to close above the breakdown trendline green area above $7300 and then make a higher low late July and higher high in August. Both would turn the weekly chart and I’ll become a dip buyer. It would be arrogant and simply stupid to think that we can’t turn bullish. It’s bitcoin. In the long run it's going much higher and a huge crypto bull so I’d love to see us turn and I would gladly move to the bullish side. I just want to see more evidence before I turn bullish.
My biggest concern if we don't make lower lows in July is a long sideways ranging market.
Thats an example of bitcoin going into a tight range for 5 month in 2016. This is a real possibility, it's tough trade. Cycles are never clear. 90% of people aren’t ready to trade a long tight range.
Trading the Bearish Scenario
So if we drop in the next 5 days, we’d have a little less than 3 weeks of downside. If this rally continues past July 12th, then I start to get neutral. If the rally makes a high past July 15th then I’d lose confidence in a lower low in late July. A rally that long, this late in a 60 day cycle is definitely bullish and more than just a bear market bounce. So I have to change my strategy in that case.
Again, with proper risk management this is not hard to trade.
I put the bearish scenario at 75%. But again, If bullishness continues and I manage my risk so I don’t take big losses if I’m wrong. I cannot stress how important this is.
But… if I’m right, this will be a nice trade and we’ll be mentally prepared to buy a major low. Capitulation would be an amazing opportunity if we get it.
I am not convinced this current rally has staying power. However, I will explain why I believe that and what would change my mind.
First let me explain the foundation of the bearish case
- Overall when you have a big bullish parabolic move, it always comes with a bear market. And based on the accelerating channel in 2017, the ideal time for the 2018 low would be late July to late September 2018.
- Bitcoin has a weekly cycle that is usually lasts 24-28 weeks. Late July would be around the 25 week mark.
- The 60 day cycle low is due in late July.
- I did not find the June bottom to be convincing of a rally that had a lot of bullish conviction. This generally looks like profit taking and series of small short queezes rather than bullish participation.
- Usually a strong rally comes after a capitulation and we have not seen capitulation.
- BTCUSD longs are piling up.
- Low volume
- Medium term trend is still bearish until we get a daily swing low.
Can I be wrong? What is the bullish case?
Yes, of course. This is why risk management is more important than analysis. I’ve done well since December, but the market has fooled me at times and generally I took profits too early several times. Cycles are not perfect and sometimes you get a slow turn.
If the market continues to march higher I will eventually become bullish. The big key to this is to close above the breakdown trendline green area above $7300 and then make a higher low late July and higher high in August. Both would turn the weekly chart and I’ll become a dip buyer. It would be arrogant and simply stupid to think that we can’t turn bullish. It’s bitcoin. In the long run it's going much higher and a huge crypto bull so I’d love to see us turn and I would gladly move to the bullish side. I just want to see more evidence before I turn bullish.
My biggest concern if we don't make lower lows in July is a long sideways ranging market.
Thats an example of bitcoin going into a tight range for 5 month in 2016. This is a real possibility, it's tough trade. Cycles are never clear. 90% of people aren’t ready to trade a long tight range.
Trading the Bearish Scenario
So if we drop in the next 5 days, we’d have a little less than 3 weeks of downside. If this rally continues past July 12th, then I start to get neutral. If the rally makes a high past July 15th then I’d lose confidence in a lower low in late July. A rally that long, this late in a 60 day cycle is definitely bullish and more than just a bear market bounce. So I have to change my strategy in that case.
Again, with proper risk management this is not hard to trade.
- I go short here, watch for continued trading above $6800 and get cautious possibly cover some of my short with a hard stop at $6880 where I would get out and watch price action with a small loss.
- I go short at $7100 area and again, be careful with price action. And close near $7300 and I’m cautious and in that green area, i’m out. My bearish scenario loses major probabilities at that price level. Too much risk to continue to short
- If we proceed down, I add when in a position of strength at $6400, $6100. This also depends on how close we are to the timing band of the cycle low.
I put the bearish scenario at 75%. But again, If bullishness continues and I manage my risk so I don’t take big losses if I’m wrong. I cannot stress how important this is.
But… if I’m right, this will be a nice trade and we’ll be mentally prepared to buy a major low. Capitulation would be an amazing opportunity if we get it.
Comment:
Fairly nasty rejection. This is why I said I need a close above $6800 and why I kept my stop much higher. I thought it was going to break up but sellers were waiting for the liquidity.
This type of price movement doesn't happen in healthy markets. This is another reason why its hard for me to believe that we found the bottom at $5700 and starting a new bull market.
Fairly nasty rejection. This is why I said I need a close above $6800 and why I kept my stop much higher. I thought it was going to break up but sellers were waiting for the liquidity.
This type of price movement doesn't happen in healthy markets. This is another reason why its hard for me to believe that we found the bottom at $5700 and starting a new bull market.
Comment:
We broke through the channel, which is step one, but there is good support here. I expect we will trade between $6400 and $6700 for several days before it breaks down, though we can get a break down at any time. Its still early enough that we could hold support and still make a run to $7100, so be cautious and manage your risk. I have part of my position set to break even because if we recover the channel I would consider that short term bullish.
We broke through the channel, which is step one, but there is good support here. I expect we will trade between $6400 and $6700 for several days before it breaks down, though we can get a break down at any time. Its still early enough that we could hold support and still make a run to $7100, so be cautious and manage your risk. I have part of my position set to break even because if we recover the channel I would consider that short term bullish.
Comment:
Didn't take long to get through to $6400. This level here is the major area. If bulls can buy up support down here then they have a chance of forming an inverse head and shoulders.
I believe they will fail and if they drop below this level it will be tough for them to bring back up towards $6700. Under $6100 and I gain a lot of confidence. I moved my stops to break even as a reversal of that big red candle would be bullish.
Didn't take long to get through to $6400. This level here is the major area. If bulls can buy up support down here then they have a chance of forming an inverse head and shoulders.
I believe they will fail and if they drop below this level it will be tough for them to bring back up towards $6700. Under $6100 and I gain a lot of confidence. I moved my stops to break even as a reversal of that big red candle would be bullish.
Comment:
$6600 and 6400 should have been strong support. They both failed rather quickly. This is a very telling rejection. Also a ton of people went long in that $6400 range so they are now under water. Without much volume below, it could keep going. Every support that gets broken strengthens our short position.
$6600 and 6400 should have been strong support. They both failed rather quickly. This is a very telling rejection. Also a ton of people went long in that $6400 range so they are now under water. Without much volume below, it could keep going. Every support that gets broken strengthens our short position.
Comment:
Let's talk defense.
Much like a sports game, when you get the lead, you need to protect its. Not important to think about $5700 or $5000 or $4000. What if we go up? That is the right question.
... and everyone is pointing to this potential IHS.
As long as we stay above our red area at $6250 and don't have a 4 hour close below it, the pattern is still valid. However, the pattern has some issues. Its never good for the shoulder to start out with a high volume dump like this. The pattern is much stronger if we get a slower sell, then a round bottom with low volume and improving volume on the way up. If we still get that then I'll be more cautious.
Also look at the orange areas. This is where we've seen signs of buy volume through the pattern. The bulls do not want to trade lower than the area or this pattern has a very low chance of playing out. Again a 4 hour close below those orange areas put the probability into the bears favor.
Still, we must remain aware of this possibility.
Let's talk defense.
Much like a sports game, when you get the lead, you need to protect its. Not important to think about $5700 or $5000 or $4000. What if we go up? That is the right question.
... and everyone is pointing to this potential IHS.
As long as we stay above our red area at $6250 and don't have a 4 hour close below it, the pattern is still valid. However, the pattern has some issues. Its never good for the shoulder to start out with a high volume dump like this. The pattern is much stronger if we get a slower sell, then a round bottom with low volume and improving volume on the way up. If we still get that then I'll be more cautious.
Also look at the orange areas. This is where we've seen signs of buy volume through the pattern. The bulls do not want to trade lower than the area or this pattern has a very low chance of playing out. Again a 4 hour close below those orange areas put the probability into the bears favor.
Still, we must remain aware of this possibility.
Comment:
This would be a scenario where I'd cover my short.
This would be a rounded bottom that has a low around July 15-17th which would still be a valid daily cycle low even though it would be early. It would be uncommon for the 60 day cycle to make a higher low but it wouldn't be impossible.
This would demonstrate a few things.
1. That buyers are protecting $6300 and this range plus the orange ranges were part of smart money accumulation.
2. That volume is picking up and bears are running out of momentum and possibly exhausted themselves all the way down to $5700 and this last dump was all they had left.
3. People start seeing value and buy in, they see that IHS form and get bullish. Maybe we get bullish news from the G2 and sentiment shifts. Maybe we get good news in some other front.
Again, I find this is to be improbable because the bearish evidence right now is too strong. But I remain aware and ready to react.
This would be a scenario where I'd cover my short.
This would be a rounded bottom that has a low around July 15-17th which would still be a valid daily cycle low even though it would be early. It would be uncommon for the 60 day cycle to make a higher low but it wouldn't be impossible.
This would demonstrate a few things.
1. That buyers are protecting $6300 and this range plus the orange ranges were part of smart money accumulation.
2. That volume is picking up and bears are running out of momentum and possibly exhausted themselves all the way down to $5700 and this last dump was all they had left.
3. People start seeing value and buy in, they see that IHS form and get bullish. Maybe we get bullish news from the G2 and sentiment shifts. Maybe we get good news in some other front.
Again, I find this is to be improbable because the bearish evidence right now is too strong. But I remain aware and ready to react.
Comment:
This break down starts to hurt the IHS case. You really don't want to see the price trending below the opposite shoulder. A spike down here like we had on that shoulder would have been fine, but the longer we stay under $6250, the worse this gets for bulls. We are getting increasing volume on the way down, which isn't an ideal way to start building the shoulder.
Breaking $6100 is the area I start getting a bit more confident that $5700 is coming. There are some longs feeling pain now. So if enough of them have bail, it could trigger fairly significant downside move.
This break down starts to hurt the IHS case. You really don't want to see the price trending below the opposite shoulder. A spike down here like we had on that shoulder would have been fine, but the longer we stay under $6250, the worse this gets for bulls. We are getting increasing volume on the way down, which isn't an ideal way to start building the shoulder.
Breaking $6100 is the area I start getting a bit more confident that $5700 is coming. There are some longs feeling pain now. So if enough of them have bail, it could trigger fairly significant downside move.
Comment:
I posted this in my other idea. Its show the BTCUSDLONGS that built up on the move up. Many of them are underwater. if we drop below $6100 and close an hourly below it I believe this will start to become painful and every long will start to lose faith that the IHS can save them. I think anyone that bought yesterday will get nervous and all these longs can fuel a big move down.
So below $6100, I'll actually add to my short from $6700 area. And I would still add on any bounce. I also would not take profit due to the probability that we could go much lower. Again, the market can stop anywhere, but I'm looking at probabilities. I want to ride a wave down if we get a big move like we did on 6-9.
If we reverse, then I'll be stopped in profit and re-evaluate.
I posted this in my other idea. Its show the BTCUSDLONGS that built up on the move up. Many of them are underwater. if we drop below $6100 and close an hourly below it I believe this will start to become painful and every long will start to lose faith that the IHS can save them. I think anyone that bought yesterday will get nervous and all these longs can fuel a big move down.
So below $6100, I'll actually add to my short from $6700 area. And I would still add on any bounce. I also would not take profit due to the probability that we could go much lower. Again, the market can stop anywhere, but I'm looking at probabilities. I want to ride a wave down if we get a big move like we did on 6-9.
If we reverse, then I'll be stopped in profit and re-evaluate.
Comment:
So $6100 has held so far on 2 tests. We may end up retesting upper resistance, but I also want to look at different scenarios.
The 2 green lines are areas where I have a partial and full stop in profit. If we get above those areas, then bitcoin is well past some fairly strong resistance. I would not go long and I would not be short. I would simply go flat and try to determine if this was just a consolidation and look to short a confirmed break down. Or I'd have to find out if bitcoin just made a cycle low at $6050. My opinion is that this would be unlikely and an extremely weak bottom that I would never buy. I would need a lot more bullish evidence before I'd go long and if this was major cycle low bottom, I wouldn't be confident it would hold in September.
The red is the major danger zone. I believe one more cross below it and an hourly close below it will bring on some pain and cause a dump to $5700 or below. I can't imagine many more buyers will try to defend this area, so chances of are good we'd at least break to $5k before we picked up buyers looking for a value.
My original idea is that we go below $5700 but I remain cautious and I'm looking to see if the bulls have enough support to hold this area. Anything under $6000 would fall into the category of a double bottom retest and the cycle low can absolutely be a double bottom. It does not have to be a lower low though its much more likely to be a lower low and I expect a lower lower. But if bears lose momentum and bulls fight to hold support there next week, then we have to be ready for this scenario.
So $6100 has held so far on 2 tests. We may end up retesting upper resistance, but I also want to look at different scenarios.
The 2 green lines are areas where I have a partial and full stop in profit. If we get above those areas, then bitcoin is well past some fairly strong resistance. I would not go long and I would not be short. I would simply go flat and try to determine if this was just a consolidation and look to short a confirmed break down. Or I'd have to find out if bitcoin just made a cycle low at $6050. My opinion is that this would be unlikely and an extremely weak bottom that I would never buy. I would need a lot more bullish evidence before I'd go long and if this was major cycle low bottom, I wouldn't be confident it would hold in September.
The red is the major danger zone. I believe one more cross below it and an hourly close below it will bring on some pain and cause a dump to $5700 or below. I can't imagine many more buyers will try to defend this area, so chances of are good we'd at least break to $5k before we picked up buyers looking for a value.
My original idea is that we go below $5700 but I remain cautious and I'm looking to see if the bulls have enough support to hold this area. Anything under $6000 would fall into the category of a double bottom retest and the cycle low can absolutely be a double bottom. It does not have to be a lower low though its much more likely to be a lower low and I expect a lower lower. But if bears lose momentum and bulls fight to hold support there next week, then we have to be ready for this scenario.
Comment:
I don't pay too much attention to other crypto traders, but one of the best in the business is Eric Krown. He's funny too and does an unusually long (1.5-2 hour) stream once or twice a day on Youtube, its good free trading education.
www.youtube.com/chan...xzpFzZNtLH8NgTeAROFA
This morning he brought up a good chart so this is where I got the idea. In this log chart, we can see that a major trendline has formed that exists through bitcoin's existence.
I believe its likely that we touch that line. if you draw the downtrend angle it intersects around August 10th. If we get a capitulation that goes below that line then it would hit it earlier, in late July, which would line up with my current preferred method. And we could rally and then make a drop down in the next 60 day cycle in mid to late September.
I continue to remain cautious of the possibility that we rally a bit more before breaking down. Beyond a new daily cycle rally and lower low in late September, we could easily still move to $7100 by July 20th then drop down below $5700 and find a cycle low around July 25-30th that would still be in our timing band for late July. This is still just an alternate scenario but the reason I have stops in profit.
I don't pay too much attention to other crypto traders, but one of the best in the business is Eric Krown. He's funny too and does an unusually long (1.5-2 hour) stream once or twice a day on Youtube, its good free trading education.
www.youtube.com/chan...xzpFzZNtLH8NgTeAROFA
This morning he brought up a good chart so this is where I got the idea. In this log chart, we can see that a major trendline has formed that exists through bitcoin's existence.
I believe its likely that we touch that line. if you draw the downtrend angle it intersects around August 10th. If we get a capitulation that goes below that line then it would hit it earlier, in late July, which would line up with my current preferred method. And we could rally and then make a drop down in the next 60 day cycle in mid to late September.
I continue to remain cautious of the possibility that we rally a bit more before breaking down. Beyond a new daily cycle rally and lower low in late September, we could easily still move to $7100 by July 20th then drop down below $5700 and find a cycle low around July 25-30th that would still be in our timing band for late July. This is still just an alternate scenario but the reason I have stops in profit.
Comment:
I think we'll find out direction soon.
It's obviously getting rejected at $6400 but it if it can sit here and consolidate this area and wear down the sellers, it will break up and if it breaks up and holds I think we'll go back up. Might get stuck at the 50% or 61.8% fib. I think this $6400 area is still the tougher area until we get back up towards $6800. Again, I'll get out of my short if we get past the 50% at $6550 and just watch to see what happens.
Otherwise if we roll over here I believe we'll be heading for a break down. if we fall below $6100 again, i will add to my short.
I think we'll find out direction soon.
It's obviously getting rejected at $6400 but it if it can sit here and consolidate this area and wear down the sellers, it will break up and if it breaks up and holds I think we'll go back up. Might get stuck at the 50% or 61.8% fib. I think this $6400 area is still the tougher area until we get back up towards $6800. Again, I'll get out of my short if we get past the 50% at $6550 and just watch to see what happens.
Otherwise if we roll over here I believe we'll be heading for a break down. if we fall below $6100 again, i will add to my short.
Comment:
The breakout is to the upside but has not triggered my stop. Bots took it right to the 61.8%. But so far we see follow through. Now we find it if there will be participation. It's a clean formation so I'm not going to ignore it or get stuck in a bias. The resistance here isn't that strong, so If we consolidate in this area in a bull flag or we trade much higher I will cover and wait to see how the market behaves.
If we don't get participation or struggle then I can always re-enter. But we have a chance here to go back to $6800 and that opens up $7100 regardless of what I think about a cycle.
The key to trading with cycles is having evidence to suggest we are going lower and right now the evidence suggests we can move higher, so I'm not going to fight the market.
The breakout is to the upside but has not triggered my stop. Bots took it right to the 61.8%. But so far we see follow through. Now we find it if there will be participation. It's a clean formation so I'm not going to ignore it or get stuck in a bias. The resistance here isn't that strong, so If we consolidate in this area in a bull flag or we trade much higher I will cover and wait to see how the market behaves.
If we don't get participation or struggle then I can always re-enter. But we have a chance here to go back to $6800 and that opens up $7100 regardless of what I think about a cycle.
The key to trading with cycles is having evidence to suggest we are going lower and right now the evidence suggests we can move higher, so I'm not going to fight the market.
Comment:
I'm out and on the sidelines. And so far the price action is very bullish. So regardless of where I think we are in cycles, price action says we very easily can go up so I am not going to just sit in a short.
I use every tool in my toolbox and even though my cycle count suggested lower prices, everything else says we go up. When this happens I just get out of the market and watch until I get some clarity.
I use every tool in my toolbox and even though my cycle count suggested lower prices, everything else says we go up. When this happens I just get out of the market and watch until I get some clarity.
Comment:
At the risk of sounding redundant, I want to stress that price action is now bullish regardless of my previous analysis. As a trader, you have to remain nimble and open and be capable of changing your disposition. I'm still concerned about a cycle low in July, but in the short term, I see higher prices most likely. I'm on the sidelines and just watching. I think we'll end up going to the top of the range then consolidating to form a handle and break up. This is better than 50-50 in my opinion.
The only thing that would change my mind is if we got aggressive selling coming in and $6800 area and continued to wicks forming at the top. In that case, I might consider shorting but at this point, I don't plan to do that. It's also too high for me to go long. I want to see some consolidation and I'll consider a long if we consolidate for the next move up, probability look for to put a buy stop above $6880 IF we get consolidation. This would be a very short term, small position if the structure looks correct. I would not consider this a swing trade for a long term hold.
At the risk of sounding redundant, I want to stress that price action is now bullish regardless of my previous analysis. As a trader, you have to remain nimble and open and be capable of changing your disposition. I'm still concerned about a cycle low in July, but in the short term, I see higher prices most likely. I'm on the sidelines and just watching. I think we'll end up going to the top of the range then consolidating to form a handle and break up. This is better than 50-50 in my opinion.
The only thing that would change my mind is if we got aggressive selling coming in and $6800 area and continued to wicks forming at the top. In that case, I might consider shorting but at this point, I don't plan to do that. It's also too high for me to go long. I want to see some consolidation and I'll consider a long if we consolidate for the next move up, probability look for to put a buy stop above $6880 IF we get consolidation. This would be a very short term, small position if the structure looks correct. I would not consider this a swing trade for a long term hold.
The last 7 days has been about as choppy and spikey as you'll see a market. Its fight between bulls who are gaining momentum and bears that want to see a continued trend down. A lot of these spikes are just stop runs punishing people that have too tight of stops.
This is hard market to read. I'm about 50-50 as to whether it will break up or down. In some ways, i'd rather see it go to $7100 as I would be able to take a rather large position close to a tight stop and it would either be a big win or a small loss.
For now I still have my position I've held for awhile and being patient. If we get about $6800 and can actually get an hourly close above that level and not just a quick spike, then I think it has to a chance to make a strong break up and get there.
So still short, stop at $6880. But cautious.