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Technical Outlook for October 2018

In the face of so much positive news combined with Bitcoin’s resilience above the 6K support, online sentiment has shifted to become...

The past month has been extremely slow for Bitcoin and the surrounding crypto asset market. In the face of so much positive news combined with Bitcoin’s resilience above the 6K support, online sentiment has shifted to become extremely bullish. For contra traders, this could be seen as a red flag. Often times the crowd is wrong. For this assessment, we are going to ignore the bullish buzz from crypto twitter and other news outlets and look at bitcoin from an unbiased lens. A novice technical analyst can easily see bitcoin is prepping up for a big move, the obvious question is which direction? Let’s start with the bear case:

Volume:

The current volume level in the bitcoin markets is still relatively meager. Without consistent and high volume Bitcoin will have a very tough time making a large move out of this descending triangle. This can often induce bull trapped regions where TA is leaning towards bullish but volume isn’t there to support the uptrend and we get a subsequent “low volume dump”.

Heavy upside resistance:

As we all have witnessed during bitcoins recent grueling sideways movement, there is heavy support on the upside that needs to be broken with momentum and buying pressure. That first stop is $6850. 6850 has been a brick wall for bitcoin. We have seen two attempts to break it in the last month but they were both met by high sell volume and all we got was a quick wick down. With that being said, there is not much resistance between $6850 and $7400 so if we are able to pierce that region with volume, expect BTC to continue to push up and retest that previous support zone. In the Chart below the critical support lines are denoted as well as the volume.

Short pressure:

According to Bitfinex data there is a large disparity between BTC Shorts and BTC longs. There are roughly 20K BTC longs versus 35K BTC shorts. In general, this short pressure is considered bearish, although, if $BTC does not fall as expected, this sets us up for a nice potential short squeeze. This is quite a critical time for the bears to show their mettle and sustain high short pressure. In the past few months any drop in short levels have been met by a quick rapid increase. This all lends itself to the critical nature of this level in Bitcoin. If short levels continues its ascent back to previous ATH’s I would expect BTC to drop especially in the face of such low volume.

 

All TA and fundamentals aside, BTC is just like any other traded asset and no matter how primed it looks to breakout, there will be no bull run without a renewed interest in the general public and an ensuing fresh set of new buyers. Too many retail investors still have the sour taste of FOMO in their mouths. In order to really move forward that will need to change drastically.

Bull Case:

It is clear Bitcoin is squeezing in tight. A large move is in the making. There are a few strong technicals in large time frames that help make the case for a move upwards.

Moving Average:

BTC still is sitting comfortably below the 200 day moving average, an indicator that aggregates past data from the previous 200 candlesticks and puts it in one line. Price action below this 200 day average is technically considered bear market territory. With that being said, BTC is looking prepped for a “Golden Crossover” where the 200 day MA moves below the 50 Day moving average and becomes a new support. In small time frames this has already occurred, although the most important time frame to consider when using moving averages is going to be the 1 day interval chart. Currently it’s clear the moving averages are fanning out and pinching in. If the 200 Day moving average can successfully push below the 50 MA there will undoubtedly be a large upwards move.

 

Relative Strength:

BTC relative strength on large time frames is becoming very interesting. The past few months of sideways movement has shown a consistent cycle of rapid ups and downs for the RSI. Now, things are shaping up a bit differently from the RSI. Aside from the anomaly pump/dump from this weeks tether debacle, There is a clear gradual increase of the RSI categorized by consistent “higher lows”. This RSI pattern is considered to be a “bullish divergence”. If this uptrend can be sustained within the RSI it will only continue to strengthen the case for the bulls.

There is a flood of other non-technical features of Bitcoin right now that could also be a catalyst for the next upwards movement. From potential ETF approvals, to the Van Ek and solid X ETF entering into the crypto space in December, it’s hard to argue that Bitcoin and crypto assets have not peaked the interest of large, long term institutional investors. With all of that being said I personally don’t think we are out of the woods just yet. General sentiment is too bullish to believe. For a convincing reversal to happen I truly think we need another serious shakeout. Once bears regain control and we start to see the plethora of “3K” calls, then the bulls can strike. For now, sit tight and keep your eyes on Bitcoin. This is quite an interesting moment for bitcoin on a medium term outlook.

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