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April showers bring May wash-out?

We got a great note from a very successful individual trader last month. She posited that the inability of bitcoin and digital assets to rally in the face of a) the Canadian government blocking/confiscating private fundraising efforts, b) the Russia-Ukraine conflict and the corresponding sovereign-level fiat-denominated asset seizure phenomenon (cutting Russia out of the SWIFT system), and c) a huge Miami crypto conference meant that, together with a weak looking chart, bitcoin could be heading to $30k.


She nailed it.


But now that we've hit $30k in BTCUSD, where do we go from here?


Let's leave narrative and fundamentals to the side (for today) and just concentrate on price for now. Below is a Gemini exchange BTCUSD daily semi-log chart from tradingview:


  • Top panel

  • Daily price candles - red and green

  • Current 200-day moving average as of 10am, May 11, is $45,941 - solid light green line

  • Bottom panel

  • The BTCUSD price divided by its 200-day moving average - solid blue line

  • Current level -32% - price is trading 32% below its 200-day moving average

  • Horizontal green dashed line at -40%, previous hits on that line highlighted by the vertical light blue dashed lines





  • That 40% below the 200-day moving average is within sight. Right now that level would be ($45,941 x [1-0.40]) = $27,564.

  • If you squint at the bottom middle of the chart, you can see in December of 2018 (end of Crypto Winter), we spent a few weeks below -40% - and I think we spent say ~1 day below -40% on March 12, 2020 (beginning of US lockdowns).

  • The low of those periods was a very brief -50% - right now that would translate into roughly ($45,941 x [1-0.50]) = $22,970.


This tool is a blunt indicator, not necessarily a timing trigger - it is telling us there should be significant support not too far from current levels. We value this indicator but like to consider multiple studies to build a more robust opinion.


We can look at classic support/resistance and trend lines:





We can look for any momentum divergences (using RSI vs price):




  • Top panel

  • Lower lows in price both YTD and over the past month or so (downward sloping orange arrows)

  • Bottom 2 panels

  • YTD - momentum with a positive divergence, higher lows (green dashed arrows)

  • Recently - still making lower lows (downward sloping orange arrows) - in a perfect world, we need those arrows to turn green so momentum makes higher lows across this shorter time frame

There is enough momentum divergence to make a case that conditions are there for a meaningful bounce, but we'd like to see the shorter time frame confirm that with higher lows in momentum to increase the odds that indeed a move up off these lows is possible.


...


And we are finally getting a glimmer of strength in price from the blockchain-related publicly traded equities (represented here by the BLOK ETF) relative to BTCUSD to confirm the momentum divergence we've seen on the chart below (higher lows in momentum vs lower lows in price). Some times blockchain-related equities can lead the coins. That being said, BLOK does contain some constituent stocks that do not have pure digital asset beta (and are therefore typically less volatile) - we would still like some of the former bellwethers like COIN, MARA, and even MSTR (although MSTR is a little bit in its own category as a potential target for hedge funds to short in the near-term) to find some sort of near-term support on an individual basis - this has not yet happened.





How about a simple indicator to add to the rest of our study - Bollinger Bands - a measure of standard deviation calculated around a 20-day moving average - this tool can sometimes point out when price is stretched.



  • Top panel

  • The red line is the top band representing 2 standard deviations above the 20-day moving average

  • The green line is the bottom band representing 2 standard deviations below the 20-day moving average

  • Bottom panel ('% B')

  • If the green line is above 1.0, then price is through the upper Bollinger band

  • If the green line is below 0.0, then price is below the lower Bollinger band

  • The pink dashed horizontal line shows the Monday (5/9/2022) low in % B at -28% below the lower Bollinger band

  • The vertical blue dotted lines highlight the 5 previous times price has been that far below the lower Bollinger band

  • the 1st two vertical lines on the left occurred in Q4 of 2018 after bitcoin broke down out of an incredibly tight consolidation range - in this quarter, the extreme negative %B readings actually preceded a large sell-off instead of indicating the end of one...

  • the Sep 2019 vertical line and corresponding negative %B represented a temporary, but meaningful, pause in selling

  • the final two vertical lines, March and September of 2020 resulted in tradeable bottoms

Here is a closeup of this week's negative % B reading:





Conclusion:


We are not calling a bottom - we are trying to take a fresh, analytical (non-emotional) look at price. So, narratives and on-chain metrics aside, the technical picture is showing an oversold market currently entering a price zone ($27-29k in bitcoin) that could contain fairly robust support. On a day-to-day basis, or hour-to-hour (since these are digital assets we are talking about!) basis, there could be significant under-shooting of support zones due to more forced liquidations. There are other factors to take into account that we have not gone into here (like on-chain metrics, funding rates, futures positioning, narratives/fundamentals) which will may have a large impact on the short-term picture - but the charts above suggest there are some reasons to start thinking about putting some money to work in the space if you have a long-term (years) time horizon...and a strong stomach...:)


Please do your own research, this is not investment advice.

Chart details, time stamps, etc. are in the body of the charts.


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