Saturday, 20 July 2013

BTC Week Review

While the bitcoin market never sleeps, the weekend presents a natural pause for us humans and we thought you would appreciate a review of the last week's price action as you make plans for the next.

Let's take a look at the daily chart first:

Here we can see the major technical features that have been influencing market sentiment of late.  They are;

1. Rising Support (Thick Green Line) traced against the lower limit of previous price extremes: pierced 2 weeks ago then re-pierced and currently supporting price.

2. Descending Resistance (Minor Green Line) traced against upper limit of previous price extremes: finally pierced last Friday week signalling a potential shift in sentiment to the up-side.

3. Horizontal Support (Thick Red Line) which has been pierced 3 times in the last month and around which price currently oscillates.

These features are relevant now for no other reason than they have proven relevant in the past; representing extremes in price and the mass psychology that drives it.

What they tell us is that sentiment within the bitcoin market is pretty evenly balanced.  On the one hand, the bear trend established in May is finally being questioned (resistance has been pierced) but on the other, we didn't travel far to the North before buying energy evaporated, provoking a retest of the resistance zone we had just traded through as support.

To get a better understanding of how and why this played out as it did, let's home in to a lower time-frame chart:

Here we can see that having made an extreme to the downside, the market reverses powerfully, clawing its way right back through the resistance zone (A) at pretty much the first attempt; this was significant.

However, having made it into 'clear air' we start to see a clear drop-off in upside momentum and volume at B. Having moved so far and fast bitcoin is no longer viewed as a bargain by active traders of it, who want to see either cheaper prices or more evidence of this shift in sentiment before they are prepared to buy more. Others will be taking profits on holdings accumulated lower and still others will be using the rally to liquidate holdings acquired higher, having long since convinced themselves that the market  is in trouble and seeking to minimize their losses.  In the final analysis the individual reasoning of various participants is less important than the sum of them, which is for the market to drop back to a level at which buying and selling power again achieve parity.  It should surprise none of us that this has been established against those same technical features at C.

Put another way, what we seeing play out in the bitcoin market is absolutely no different to what we might see in any other financial market - over and over again.  A market will always conspire to test its prevailing limits because that's what its participants expect it to do and as a result, this is where orders get placed.  When a limit gets pierced one way it is not uncommon for it then get tested from the other as the sum of participants exercise their individual bias' at the best price they feel is achievable.

Understanding this is what fed our view last Wednesday that we might expect a correction (to support) and in the event this is exactly what has happened.  It also informed our bullish bias at prices above $85.  Here you can see why we set this price point where we did.

So, what next? Well, we are currently sitting right on support.  If the market is going to attempt another swing to the North it is going to happen from here or not very far South of here.  If, on the other hand we leak back through support and $85 then downside momentum is likely to build and we could quickly quickly see $75 after that.

As we re-iterated on Friday, it is from an extreme, within the current context, that the best trades are to be found.  To this end we remain bullish above $85 and regard current prices as a bargain.