Quick Overview

Bloody Monday! And Rejected EMAs!

Another roller coaster weekend. But this time, we followed up with a Bloody Monday.

The entirety of the week comprised of “wicks” shooting to either side of the narrow trading range. This is a clear indication of “liquidity hunts”. Institutional money looking to distribute (and/or accumulate) in target price-areas where retail investors are likely to place their orders. Once they tap into that liquidity, the price promptly returns to the range. We witnessed that all week and cautioned against trading the lower time frames.

If price action in the past week frustrated traders, the weekend was just as bad . Bitcoin bursted out of its trading range early in the day and shot up to $3660 to test the 21 EMA.  Once again, sellers promptly stepped in and the move was sold into. Krown managed to catch the move live on video this Saturday. He was quick to place a short himself  – a rather exciting video after week of lethargic price action!

The following events contributed to Krown’s conviction in the short.

1. Rejection of the daily 21 EMA

2. Rejection of the daily 10 SMA

3. Rejection of the weekly 10 SMA.

Furthermore, Bitcoin is still playing out the the larger symmetrical triangle that we’ve been discussing. Taking all of this into consideration, it’s no surprise that Monday started off with blood.

All signs still point to (at least) $3250

We’ve been saying it for almost a month now. All signs point to the $3250 area. Nothing has changed. There has been far too much confluence to suggest otherwise, namely:

1. The Symmetrical Triangle

2. Double-Top Murder Formation

3. Weekly 200 SMA

The Symmetrical Triangle

As depicted in the previous reports, BTC was forming  a Symmetrical Triangle for weeks. It finally broke down at the $3850 region. While price action remains below that level, the measured move for this formation points to the $3250 region.

The Double Top

Then we had the Double-Top “M for Murder” formation on the 3-Day. The break of the neckline of this formation occurred at the $3700 region. It’s measured move pointed to the $3250 region as well. Considering this is a double-top formation on a higher time frame, we had a high degree of confidence in it playing out (and so far it is).

The 200 MA

Finally, we have the 200 MA that is sitting on the $3250 region as well – confluencing with both measured moves. The 200 MA is the mammoth of all MAs – especially on the weekly time frame. Almost all eyes are on this moving average. And the more eyes you have on a support/resistance line, the stronger it is likely to be. Bitcoin has been ranging between this 200 SMA and the 200 EMA. A break of either one of these will likely lead to a bigger move.

We’ve tested the 200 EMA a couple of times already – and it’s proven itself as strong resistance.  And now, it looks like Bitcoin wants to test the support at 200 SMA another time. Will it hold?

Note: The 200MA has creeped up since the last test in December where it was sitting at the $3100 level. As things stand, the 200MA is currently sitting at $3298 (Bitstamp).

Lows in? Nope – Not yet.

Price may very well bounce of the 200 SMA. However, we strongly believe that Bitcoin is eventually going to break through this level and make new lows. We typically like to see at least a few flags turn green to indicate a possible low. Some of these flags are:

1. High Volume Buying
2. Volatility Index
3. NVT Signal

None of these signals are flashing on – which makes us lean to newer lows.  Our eyes are on some key levels of support:

1. $2450  zone
2. $1900 zone
3. $1150 zone

Of course, these need to happen one at a time. When will this happen? Well, time-analysis can be tricky. These things can take time to play out. That being said there's a counterpoint that may indicate a more immediate break of the level: The Monthly 55 EMA.

55 EMA Monthly:  An S&R Flip?

55 EMA on the monthly has seemed to have turned from support to resistance. This is an extremely bearish sign. The monthly 55 EMA has successfully held as support on all prior monthly closes.  However, as we inch towards the end of this month of January, the monthly 55 EMA seems to have given way.  

Support has turned into resistance (S&R Flip) as January struggles to break past the 55 EMA sitting at $3670 level. This confluenced perfectly with the rejection of Bitcoin’s breakout this weekend

We still have three days left for Monthly candle close. But as things stand, it likely that we are going to close underneath the 55 EMA. An official close below the 55 EMA will make the larger picture look grim.

However, anything is possible in Bitcoin land. A dramatic move to the upside should not be discounted. A lot can happen in three days.

Ethereum: Leading The Market Up ...And Back Down!

Ethereum’s news driven rally back in December 2018 took the entire market up with it. However, we cautioned that it is very likely that it takes the entire market down with it as well. It seems that the market is playing out just as we predicted. This was highly anticipated since it is class event-driven market-behaviour:

1. Event is announced
2. Market rallies leading up to the event
3. Market dumps closer to the event

Interestingly enough the event that was supposed to take place – never even happened. Constantinople was delayed and pushed back to the last week of February. Could we see the entire sequence of events repeat?  Afterall, the initial rally seemed to have been a carbon copy of the BCH fork rally. Let’s see how things pan out..

That being said, Ethereum was forming the perfect Head & Shoulders pattern. Erik Crown stated that it had all the right characteristics for the pattern:

1. Correct shape
2. Correct Volume characteristics
3. Correct Price Action characteristics.
4. Well defined neckline.

However, the formation began to show some hesitation & doubt when the right shoulder got extended far too much. It was followed up with a rejection of the neckline to the upside.

But the distributive price action morphed the formation into a smaller descending triangle  – which Eric discussed extensively on his daily streams. The measured move pointed to approx. $99. This seems to be playing out as we type this (Ethereum is currently sitting at $103.15)

Weekly Bitcoin Price Prediction: Summary

Overall trend remains bearish. Multiple signs point to a revisit of the weekly 200MA. In fact, price appears to be dropping even as we conclude this report. While we do believe that Bitcoin will eventually make new lows, we believe that we are likely to encounter strong support at the $3.2k region. Although, the break of the monthly 55EMA leads us to believe that BTC may break the $3.2K level on its current drive down.

Buckle Up! Its looking bumpy out there...

In this post Shawn Dexter explains why the Ethereum Constantinople Hard Fork was delayed. He states the reason for the delay and any actions you many need to take in response to the delay. Shawn also explains security vulnerability called a Reentrancy Attack and how it was also used in the DAO Attack of 2016.

This depends on whether you’re simply an investor/trader or if you’re a miner or node operator.

1. Do you need to do anything with your Ether?
   No – if you’re simply an investor, just sit tight. You do not have to do anything with your Trezor, Ledger, MyEthereumWallet (MEW).  So, watch out for scammers who may try to confuse you.

2.Do I need to upgrade my node?
    Yes – if you’re a miner or node operator you will have to upgrade to a new version of Geth or        Parity before approx. 4am Jan 17th GMT.

Quick Answer: The security vulnerability arises from the update that introduces Cheaper Cost Of Storage [EIP1283] that we discussed in our Constantinople Simple Explanation post.

The cheaper gas costs allowed for an exploit in the Smart Contracts. This particular exploit is called a “Reentrancy Attack”.

It's already in the process of being fixed. The developers hoped that they could fix it before the network upgrade, but these things need time for proper analysis. They decided to err on the side of caution and postpone the hard fork until they fully investigate the extent of the vulnerability. 

I’ll give you guys a simplified explanation. A Smart Contract may communicate with an external Smart Contract by “calling it”. If the  external Smart Contract is malicious, it may be able to  take advantage of this and take over control flow of the first Smart Contract’s code.

This allows the attacker to make unexpected changes to the first Smart Contract’s code. For example, it may repeatedly withdraw Ether from the Smart Contract by “re-entering” at a particular spot in the code. (Essentially, it makes multiple invocations of the withdrawBalance() function)

Note: It’s important to note that this security vulnerability does not exist in the current Ethereum chain.  All Smart Contracts on the current chain are Reentrancy-Safe!

The introduction of cheaper gas costs allows for the reentrancy attacks to be viable. Since Ethereum has not made any software upgrades yet, the main Ethereum chain is not at risk in any manner. In fact, even if the upgrade to Constantinople occured, only a small number of Smart Contracts would have been vulnerable.

Yes, and no.  Yes – if you were making your investing/trading decisions solely based on this event. In a previous article we warned about how unpredictable price movement can be closer to events.

But overall this is a great thing for Ethereum – and for long term investors. Catching this security vulnerability right before the network upgrade is a gift. If Constantinople went live before  and if the security vulnerability was discovered by malicious attackers, then things could got far worse!

Let’s not forget the disaster of the 2016 DAO Attack – which was actually caused by attackers exploiting code that was vulnerable to a Reentrancy Attack!

Many of you may not be aware of the DAO Attack of 2016. Attackers used a combination of two types of Reentrancy Attacks: Single Function & Cross Function.

The attackers were able to siphon 3.6 Million Ether from the DAO Smart Contract to their own accounts. Fortunately, the Ethereum community decided to Hard Fork and restored all the funds to the original Smart Contract. However, this led to a lot of controversy and led to the infamous Ethereum and Ethereum Classic network split.

Up to today, Ethereum bears the stain of the DAO controversy – albeit fading with time. It would be a disaster if it were to happen all over again.

The fact that this vulnerability was detected by a third party team – ChainSecurity – speaks to the network strength that Ethereum has built over the years. Ethereum has a global development strength that made itself a powerhouse. Multiple teams across the world are working on finding improvements, flaws & vulnerabilities. These are flaws that could sink other projects if gone undetected. The Ethereum community, on the other hand, is showing its strength.

Sure, prices may take a hit for the short-term. But like I said, it could have been far worse. In the long run, this delay will be forgotten. A security breach (and possible contentious hardfork that would follow) would never be forgotten.

It’s been a roller coaster of a weekend. Bitcoin price witnessed a sudden $200 move in both directions within a matter of hours.

Saturday started strong with Bitcoin making a quick move from the $3600 to $3775 – almost a $200 move to the upside. Could we have foreseen this move? Perhaps.

Bitcoin formed a smaller Symmetrical Triangle over the week. Eric Crown has emphasised that symmetrical triangles have an equal opportunity to break to either side.  However, in a overall bearish trend – we tend to lean toward the downside.

Surprisingly, Saturday saw Bitcoin break the smaller Symmetrical Triangle to the upside. The breakout hit the measured move perfectly. Although Eric himself leaned to the downside, he demonstrated his professional skills by responding to market action and trading the breakout perfectly.

The break to the upside had many people feeling bullish about the markets once again. But the anticipated follow up simply failed to arrive.

Instead, sellers stepped in promptly and sold heavily into the $3775 level. The price quickly retreated to $3700 which resulted in a successful rejection of the daily 21EMA break. And this was key! (we’ll discuss why in the next sections)

Sunday showed a powerful response to the rejection of the 21 EMA. With rejuvenated confidence sellers were able to push the price of Bitcoin all the way down to $3500. A $200 move to the downside this time.

Interestingly enough, the rejected 21 EMA lined up with $3700. The $3700 was also the neckline for the  3-Day M-For-Murder formation (double top) that we also discussed in the previous post.

As Krown would say: “M” stands for Murder!”. If you’re forming an M-like formation, you don’t want to break that neckline. And Bitcoin did just that when it closed a three-day candle under $3695. This neckline break has a high degree of playing out to the downside – especially on the higher time frames.

However, these formations may occasionally show a false breakout to trap people. A re-test of the neckline isn’t uncommon. But a rejection of the retest adds further probability of it playing out.

Notice the weekend rejection of the 21-EMA lined up beautifully with this neckline (as displayed in the image below).  This is very likely to increase seller confidence, as they begin to target the measured move for this break.

The measured move for this is typically the length between the neck and the top. This points to a move downward to around $3200 level area.  

And this is where things get even more interesting. We’re already seeing confluence with the Daily 21 EMA rejection and the 3-Day M-Formation rejection. These also line up perfectly with Bitcoin’s Symmetrical Triangle formation and the 200 Simple Moving Average.

The 200 Moving Average is typically a strong level that draws in a lot of attention.  It gets even stronger on the higher time-frames such as the weekly chart. Currently, BTC has been ranging between the weekly 200 Simple Moving Average and the 200 Exponential Moving average.

After breaking the 200 Exponential on its first pass, Bitcoin went on to test the  200 Simple Moving Average which proved as strong support. Bitcoin then went on to test the 200 Exponential a few times and was rejected each time. This leads us to believe that a test of the 200 Simple Moving average is imminent.

The 200 Simple Moving Average is currently sitting at the  $3250 range which has perfect confluence with:

1. M-formation breakdown
2. Symmetrical Triangle breakdown

Both of the patterns above have a measured move to the $3250 range as well. The big question now, however, is: 

Many seem to believe that we have seen the lows. However, we strongly believe that the lows are not in just yet.

Unlike most other cryptocurrencies, BTC has ample price cycle history to draw some clues from. One of the clues left behind is the Volume Signature during the 2014-2015 bear cycle.

Volume – while often misused – is one of the best ways to understand the overall crowd behaviour on a particular asset. Remember, we aren’t simply trading the indicators. Instead, we are trying to derive information about the mindset of the crowd.

Let’s take a look at the low of the 2014-2015. BTC saw a devastating weekly price drop of 45%. This was accompanied with volume doubled that of the preceding weeks of price action. Below is the 2015 BTC weekly chart:

A closer look at the current volume profile indicates low participation. What does that mean? Essentially, we aren’t seeing the same anxious/exuberant selling & buying behaviour that we saw in 2014.  Does that mean we are looking for the exact percentage drop & volume profile repeat once more? No, absolutely not.

However, the historic data does give us an idea of the behaviour we would like to see. If we see data that indicates a certain behaviour, then we may conclude that there are signs of a bottoming. As of now, however, we are not seeing any clues that point toward a bottom being in.

Do we believe that we will blow past the bottom right away? No – these things take time. In fact, Bitcoin is showing characteristics that are very reminiscent of it’s consolidation during the $6000 region. It may very well be that Bitcoin consolidates in a very similar way before finally break the $3k region.

That being said, there is one factor that may lead Bitcoin to it’s lows quicker than anticipated – Ethereum.

As mentioned in the previous report, Ethereum does seem to be leading the market. The event-driven rally was followed up with the much expected dump in price. Typical event-driven-market-behaviour:

1. Event is announced weeks in advance.
2. Price begins to rally closer to event.
3. Sell-off begins just before the event.

And this is precisely how Ethereum’s price action has played out over the past month. It rallied closer to the event date, and then the price began to reverse. Additionally, Ethereum seems to be putting together a bearish reversal pattern that points to possible new lows as well.

We typically do not like to point out a Head & Shoulders pattern prematurely – especially since it’s one of the patterns that is most often acted upon far too early. However, Ethereum has all the underpinnings of a Head & Shoulders (H&S) pattern. Eric Crown agrees with the likelihood of Ethereum forming a reversal H&S pattern as well, stating:

1. Correct shape
2. Correct Volume characteristics
3. Correct Price Action characteristics.
4. Well defined neckline.

And until the neckline is broken with Volume Confirmation, we cannot call this a fully formed H&S. For now, we can say that Ethereum has all the makings of a Head & Shoulders – but it’s missing the final element: The neckline break

So what happens if we do get the neckline break? Well, this is where things get interesting (or scary, depending on your disposition) The measured move for this neckline break points to a price of approximately $70.

While this may surprise people, it’ll be prudent to remember the following points:

1. Ethereum has already visited the $80 region
2. If Bitcoin were to make new lows, it’s not far fetched to point Ethereum to new lows as well.

But again, we must emphasize that this thesis is only valid if the H&S neckline breaks. Ethereum is currently sitting at a strong support level. And If the neckline doesn’t break relatively soon, then we could possibly consider the H&S thesis invalidated

Overall trend still remains bearish, and multiple signs point to Bitcoin visiting the $3250 region. While we do believe that Bitcoin will eventually make new lows, we don’t believe that we are likely to break the $3k region just yet. However, Ethereum is putting together a bearish reversal pattern that points Ethereum to new lows. Since Ethereum has been likely leading the market recently, we wonder if it could be the impetus for Bitcoin visiting new lows as well. That being said, all of this is predicated on Ethereum breaking it’s neckline – which it hasn’t done just yet.

Interesting times ahead of us. Interesting, indeed.

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.

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:

1. Volume characteristics were wrong
2. Descending neck line
3. Overall shape wrong

Krown cautioned against playing this move early, and warned that it could be a trap.

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.

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:

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.)

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.

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:

1. 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.

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:

1. High Volume Buying
2. Volatility Index
3. 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:

1. $2450  zone
2. $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.