Disclaimer: This ideas presented in this article should not be taken for investment advice, and are simply the views and opinions of the author
This report will be the first of the weekly collaborations between Eric Crown & MangoResearch. Eric is, by far, one of the few technical traders in the space that really knows what he’s doing. He has over 10 years of experience trading traditional markets and market-making for equities.
What we like about Eric the most is that he doesn’t simply trade technicals – he trades the crowd psychology & behaviour derived from the technicals. We’re excited about this collaboration and will hope you enjoy & learn as much as I have from Eric.
Ethereum Leading The Way
Over the past month Ethereum saw a massive rally of nearly a 100% gain. But as we drew closer to the Constantinople upgrade, Ethereum price momentum began to show signs of exhaustion. This is typical event-psychology-behaviour:
Event is announced weeks in advance.
Price begins to rally closer to event.
Sell-off begins just before the event.
We discussed this move & its similarities to the BCH in a previous post. We mentioned how Ethereum’s event-driven rally may have propped up the market, and how it may similarly lead the market back down after a full retrace.
After breaking down from the top, Ethereum began to form a perfect descending triangle. We discussed this as it was playing out in Krown’s Discord Channel. A bearish formation in a macro-bearish trend is very likely to play out to the downside. And it looks like it did.
Now, the question is – will it do a partial retrace or a full retrace? Ethereum is currently sitting at a key Fibonacci level 116. This level is more likely to be supported for now. But a bounce from here may lead to an ugly H&S formation.
Bitcoins Reaction: Pointing to a Retrace to $3200
Bitcoin rallied to a local-high of around $4100 level. it was here when far too many people began to call an “inverted Head & shoulders” pattern. Krown, however, vehemently disagree citing the following reasons:
- Volume characteristics were wrong
- Descending neck line
- Overall shape wrong
Krown cautioned against playing this move early, and warned that it could be a trap.
The Golden Cross Feint
As the price flirted with the $4100 region, the 50 EMA and the 200 EMA began to draw close on the 4hr charts. When the 50 EMA crosses over the 200 EMA, it is considered very bullish and is referred to as the Golden Cross.
A Golden Cross is usually followed with upward/ bullish price action. The move playing out would have had perfect synergy with the “inverse head & shoulders”.
However, as price action unfolded on the cusp of the golden cross, BTC witnessed heavy sell pressure. This quick turn to the downside prevented the golden cross from playing out, and instead resulted in a 50 - 200EMA “Kiss”. A clear depiction of the “Kiss” is presented in the image below
Krown had something pretty profound to say about this:
“The massive dump told you something by NOT telling you something”
When you have heavy selling coming in to avert a bullish move, you know that the big players/bots are still on the sell-side of the market. This further confirmed that the Inverse H&S was more of a trap than an actual formation. With the rejection of the Golden Cross, Bitcoin seemed to follow Ethereum’s lead and swiftly retreated to $3600.
BTC Now Pointing To $3250
The heavy sell-off on BTC led to a clean break of the larger Symmetrical Triangle. Symmetrical Triangles usually could break either way Why? Because it indicates that while sellers are stepping in at lower and lower prices – buyers are also stepping in at higher and higher prices.
However, since the overall trend is still bearish, we lean toward the downside – but always wait for confirmation of the break! The move to $3600 broke downward on the symmetrical triangle with high volume. This was a clear confirmation.
As can be seen above, the Symmetrical Triangle broke to the downside. The measured move for this symmetrical triangle points toward $3250 – which is really interesting. Why? Because there are a couple of key indicators that are currently showing strong confluence with the $3250.
Lets go over them:
3 Day: “M Stands For Murder!”
Patterns and Moving Averages on higher time frames have a much higher likelihood of playing out and being respected. The three-day chart is indicating a double top or “M” formation. And as Krown likes to say: “M” stands for Murder! Bitcoin breaking through the $3600 region also coincides with the break of the neckline of the M-formation.
The target for this is typically the length between the neck and the top. Interestingly, this points to a move downward to around $3250 – which has confluence with the measured move of the symmetrical triangle.
Weekly 200 Simple Moving Average
The 200 Simple Moving Average (SMA) on the weekly time frame has proved itself as strong resistance. The 200 SMA plays a key role in most time frames, but even more so on higher time frames like the weekly.
On Bitcoin’s last drive down, the 200 SMA stopped it in its tracks at around $3150. The 200 MA is now sitting at the $3260 region. Will we be seeing a retest of this moving average? Overall trend does seem down.
It’s interesting to note that Bitcoin has never closed a weekly candle below the 200 Simple Moving Average. (This doesn’t mean that it won’t happen in the future. It simply means that it’s a key level to watch for a potential bounce. Remember, there’s a first time for everything.)
Pay Heed To Resistance
While we've presented a case of a measured move playing into the $3200s level, it must be noted that price action towards $3200 level may take time to play out, and is likely to encounter resistance on the way.
As things stand, BTC price hovers around the 0.618 Fibonacci level at $3520, followed by 0.786 Fibonacci level at $3350. Hence, while the trend remains bearish, it'd be prudent to prepare for resistance on the way.
Quick Update: As price action unfolded last night, it turns out BTC met with resistance at the 0.618 Fibb level. Lets wait and watch for what happens next.
Overall Picture - Still Bearish
The trend is your friend until the end of the trend – and currently, the trend is down!
So how do we know when the trend is changing? Well, before we change our stance, we will be looking at a few key indicators to flag green:
- Make Higher High's on the daily chart
So far Bitcoin has consistently been making lower highs on it’s daily chart. This is a strong indication that the trend is still down. This will be the first sign.
2. Open and Close a weekly candle above 200 EMA
Ever since we closed a week under the 200 Exponential Moving Average, we have not been able to break above it. We’ve tested it, but always closed the candle underneath it. Until we close a candle above the 200 EMA, we will stay bearish on the market.
A break above that level will have us reconsidering and looking small opportunities to the upside.
3. A break above the Ichimoku Cloud and/or Cloud Turning Green on 1Day
The Ichimoku Cloud is one of the easiest ways to get a birds eye view of the current trend. If the cloud is red, the trend is down. If the cloud is green, the trend is up. If the price is under the cloud, trend is down – and vice versa.
Currently, the top of the cloud is sitting at around $5000 to $5200 range. A break above that range will show a strong indication of trend reversal.
4. A break above the $6000 level!
Finally, a breaking above the $6000 level will confirm that the trend is no longer downward. We will be overall bullish on the market and will look for opportunities accordingly.
Have We Seen Our Lows?
While many people may disagree, we strongly believe that Bitcoin has not seen it’s low yet. There are multiple signals that usually indicate that a floor price has been made:
- High Volume Buying
- Volatility Index
- NVT Signal
None of these signals are flashing on – which makes us lean to newer lows. We will discuss these in greater detail in the next report. But at the moment for Bitcoin our eyes are on some key levels of support:
- $2450 zone
- $1900 zone
When will this happen? Well, time-analysis can be tricky. These things can take time to play out. It could take weeks, or months… or it may never happen. Remember, we need to first break the $3250 zone which is being supported by the weekly 200 SMA.
Bitcoin Price Prediction: Summary
Predicting price is impossible. We can only discuss what is more "probable". All it takes is one player to change everything. However, as things stand, Bitcoin looks like it wants to eventually trace back to the $3250 level. But since Ethereum is leading the way at the moment, we are expecting the Ethereum bounce to prop up Bitcoin as well.
Ethereum Price Prediction: Summary
As for Ethereum, the event-driven nature of the price action makes it rather unpredictable. It is currently sitting at a key support level of $116. And we expect a bounce here. But we also wouldn’t be surprised if it gave up all of it’s gains over the past month and revisits the $90 region.
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