The State of the Market

No Alarms and No Surprises

Dear Readers,

In the midst of the current [and predicted] ongoing correction, I think it timely here to review the state of the market in general. Timely because many in the market seem to have been caught off-guard with the recent move. As they say, investing/ trading is akin to warfare, and in warfare one is always to expect the unexpected. When caught off-guard, market participants can react in two equal and opposite ways. On the one hand, they may stubbornly dig their heels in and insist on a continuation of the bull run/ parabolic rise; or on the other, and usually at a later date, completely flip to a bearish stance given their dashed hopes for a moon here and now. What’s common to both outcomes here is the emotional reaction as opposed to a cool, calm and collected analysis of longer term TA. It’s TA that enables one to absorb shorter term volatility in the normal course of things. Without this preparation, and fortification to continue the warfare analogy, the volatility will come as shocks. Of course, none of this is applicable to the more extreme of the hodlers, where price action is an irrelevancy… as long as one day it eventually moons. In their particular form of madness, they’re sure to be as blissfully happy as the gold bug who can clink his coins to his heart’s ever-lasting content while uttering the mantra ‘from my cold dead hands’. That said, I’m half a hodler of Bitcoin myself, otherwise known as an investor. Note that this is a review as opposed to say a reactionary re-drawing of expectations. Recent price developments have pretty much been going to plan - no alarms, and no surprises, no inconceivable, incomprehensible moves in price. Rather, current price action, in both BTC and alts, is taken in stride as it was both expected and prepared for. To begin with, I’ll look at the chart of BTC, and then go on to look at ETH, which I’ll take as a proxy for the alts.

The price of Bitcoin has now come off from the 60K [USD] range to the 30K range. Once again, we saw a parabolic rise where the price got very ‘frothy’ on what I call a speculative episode/ mini bubble. The chances are that those calling for a bottom here and now are just displaying residual bullishness from the top - in the mass psychology of the market, where it certainly pays to be contrarian, it takes quite some time for sentiment to change. As a general rule of thumb, you could take that length of time as comparable to the amount of time involved in the parabolic rise as the following charts illustrate.

As seen in the first chart, this correction may only be a third of the way through, where the TA here serves as a corrective to the overly bullish sentiment that has yet to erode over time. I say overly because there is every reason to be bullish on Bitcoin as long as one is buying in or near the buy zone [long shaded arc/ bottom of the LGC]. Of course, the reality is most will first buy Bitcoin on a parabolic spike. Such is the introduction to it, and perfectly excusable for new entrants. Not so excusable is those with more experience in this market hyping a subsequent parabola… or themselves getting lost in the hype. As previously mentioned, something to watch for going forward is the flip from bullish to bearish sentiment. It is just when people should be buying [in say the low 20K range for those yet without a position] that the sentiment will change, and the clarion calls for say 10K will grow louder. Buying is never easy.

As far as the over-all state of the Bitcoin market/ price development goes, Bitcoin has never looked better. We’ve just seen what it’s capable of in a move to the top of the LGC channel, to be following on by the inevitable correction. This is the way it makes progress on its march forward via a series of 'speculative episodes' [multi-years cycles will become irrelevant in an increasingly liquid and mature market]. Think of it as a nascent currency in the process of capitalization. All the news and hyped fundamentals, whether to the bull or bear side, can be bracketed out of the equation, as it should be with TA, where the trader/ investor is instead guided by the chart. I’d say the prospective buyer would do reasonably well in putting bids in for the .5 and .61 retracement levels [always look for that capitulation] as tagged in the above chart, and along the time line of a few months/ later in the year as portrayed in the chart. Why so soon? Because the so-called ‘cycles’ may be breaking up into more irregular speculative episodes [article linked above].

And so to ETH, which I’ll take as a proxy for the alts. The first observation that must strike the viewer is the massive rise off the basing range, outperforming what I call the cyclical curve/ mean of prices. One could therefore reasonably expect a solid correction commensurate with its previous parabolic rise of over 10x, and of course in sympathy with BTC should price continue into a multi-month correction [as charted above]. This would then in turn set up nicely for something like a yearlong run taking us well into next year, where the market will recover its lost momentum and go onto new heights in full manic mode. What’s of interest here is that the correction in ETH may find support around levels of the previous peak of Jan 2018, just as BTC may find support at its previous peak of 20K.

Going forward, the outlook in TA terms is very positive [just when market sentiment is turning negative] -

1] An extended base has been established

2] A series of higher highs and higher lows has been put in

3] An ATH has been reached

4] A healthy correction has ensued

5] With good buying opportunities ahead for those with some cash on the sidelines

To sum up, the state of the market is looking solid in rational TA terms as illustrated and discussed. It is only those that are caught up in the reactionary and emotional sentiment of the correction that will be alarmed. In TA terms, this is no more than a shake-out before the start of a new speculative episode where the market enters into manic mode proper. But Dave, you might say, how can you be so sure? Of course, it should go without saying that all speculations arise atop of the uncertainty principle, and that therefore one will manage their risk and exposure appropriately… along the lines of the previous articles written on this subject.

For those interested in looking for further alt analysis, feel free to send an enquiry/ PM to @davthewave on Twitter. I’ll then be able to forward information on my alts page that I offer to subscribers.

Until next time,

Stay [relatively] safe out there,

Dave the Wave.