Thursday, 2 January 2014

BTC Update 2-3 Jan 2014

G'day Peeps,

The last 4 hours have witnessed the upside breakout through resistance at $835 (Gox), as predicted in our last post.  Here is how it looks on a chart:

To re-cap, having signalled a BUY at $750, we advised that it would be a significant swing point moving forward; if it held, the rally would continue; if it gave, a continuation of the sell-off was likely to ensue.

In the event this is exactly what we have seen.  When $750 was tested and held, a clear upward sloping support line was established, against which traders have been 'accumulating' bitcoin ever since. What we are currently witnessing is an attempt to break back above the next key resistance level.  While we don't yet know whether this will succeed we can see from the volume spike that an acceleration in buying has moved the market far enough to trigger the loss stops of bitcoin bears  (positioned just North of $835) which has fed the positive order flow further.

This said, we'd like to take you back to another remark we made in recent posts; namely that nascent rallies always look weak, or 'ugly'. On this point we'd like to draw your attention to the string of weak bars - or candles - immediately preceding the upside breakout. Notice that none of them looks convincing; nearly all of them seem to indicate that the market is teetering on the edge of a reversal. And yet, the slow march upwards, bar on bar, is relentless and in this case it eventually leads to a momentum surge, as sufficient buyers give up waiting for a better price and pile into the market.

And this is what we mean about trading 'from the levels'.  In this case the level to buy against was $750 - as historical evidence had shown us that it had (for whatever reason) had the ability to reverse sentiment. Every tick North of here was a tick less potential profit, paid in return for increased 'confidence' in a successful outcome.  But what this chart tells us is that waiting is a fools errand because by the time the momentum bar arrives $100 a bitcoin has been sacrificed - and we still don't know that the rally will continue!

So, with that little sermon complete (...!), let us look ahead.  And what we see here is that the next significant resistance line is up at $960. We can also see that this level is currently coincident with the top of the rising trend channel line (shown as a fine green line).  Anyone needing to liquidate bitcoin back to fiat would be wise to form a plan based on this price point.

Having said this, the current breakout isn't yet a done deal and its entirely possible that the market reverses from where we currently sit.  In this case we would point out that any powerful reversal back through $835 would almost certainly provoke us to pull the pin on the additional positions we established at $750.

Finally, please remember that this rally is still nascent; it could easily morph back into a range, before reversing or continuing.  In the meantime all we can do is watch and trade the levels.

It really is all about the levels... :-)

Rob @ BitScan

Ps. Happy New Year!