Sunday, 5 January 2014

LTC First Look Analysis 5-6 January

Okay, so you forced our hand; we're going to start looking at Lightcoin.

Before we start, I'd like to lay down some grounding principles for those readers who are not regular readers of our bitcoin analysis:

1. Until a better charting solution presents we will continue to use the MtGox feed to TradingView.  Those of you who trade through different exchanges will have no option but to do the actual price conversions manually, satisfied that the relative technical picture will mirror that which we are conducting our analysis on.

2. We are classic support and resistance traders.  While we might consider more advanced technical tools in our analysis we will never expose our readers to them.  This decision is based on thousands of hours of charting and trading experience, our belief that the past is the best indicator we will ever have as to what might happen in the future and our desire to keep our charts as clean and 'readable' as possible for you guys.

3. In analyzing LTC, we will continue to follow our 3 step process of identifying the key price points, understanding the prevailing context and only advocating trade execution where we detect extreme value or risk.

4. We're going to take our time to build a deep understanding the personality of this new - and relatively illiquid - market.

With this said, let's get going and have a look at the chart:

Okay, so we'll start with a short summary of where we have been and where we are at...

Firstly, we can see that the overall trend is UP - or bullish (... 'no shit, Sherlock', I hear you chime(!)).  The second is that having extended far above its mean in late November, LTC has been subject to a hugely volatile correction, back to that mean (indicated by the 2 green rising support lines).  Next we can see that, like bitcoin, LTC has managed to trade back beyond the technical boundary of this correction (indicated by the sloping faint red descending resistance line) and that we are now, once again established in a nascent bullish recovery.

This establishes a near term context of UP; put another way we need - currently - to be focused on places in price at which we might BUY at value - or wholesale - prices within in the context of the prevailing condition.  And this means looking below price to the convergence of potential support areas at the extreme of the existing condition.

Okay, so where do we see these key price points?  Well, helpfully, they are annotated in bold on the chart.  Below the market we can see historical support at $21.46, which is currently coincident with rising support (thick green diagonal line).  Should the market dip back here ($21.46) in the short term, we would advocate establishing or adding to long (BUY) positions here as this represents the extreme of the existing condition, meaning in turn that if we are wrong we will find out at the minimum cost, and if we are right we will subsequently book the maximum profit.  More risk tolerant traders might also consider a BUY against near term support at $24.46 - so long as they are clear that the market could easily trade $3 dollars below their entry price without demonstrating that their trade is on the wrong side of sentiment.  Over time this trading style can be costly!

Looking above price, on the other hand, we want you all to be clear that $27.90 is going to represent meaningful resistance to further advances. This view is based on the fact that it has proven the key inflection point in this instrument's short history; reversing sentiment on no less than 6 occasions in the last 2 months.  Further we note that it is currently co-incident with the upper (soft) boundary of our current trend channel.

While it is entirely possible that the market will trade straight back through $27.90,  all bullish market participants need to brace themselves for increased volatility and a potential reversal at this point in price.

That's all we have for the moment.  Please don't hesitate to fire any questions you may have straight back down the bearing.

Speak soon.

Rob @ BitScan