Today we follow-up with our ‘BTC Contraction/Expansion Report’ from Monday 2/4. In that piece we wrote “The second strategy that you could deploy would be to place a BUY-STOP order just above the tip of the last 1-day candle, and SELL-STOP order just below the bottom tip of the last 1-day candle. The idea here is that when the move is made, you can have a good entry point for the beginning of this new ‘trend’.”
If you followed this strategy you would have initially gotten long at the magenta horizontal line at roughly $3,435 BTC:
As we dove further into this trade we wrote “Let’s get technical and go one step further on this second trade. When you get filled on your initial stop-order (let’s say you bought on a break out rally) you would then quickly place a SELL-STOP order at the SAME PRICE as the purchase, but for GREATER SIZE than the original trade. This concept is that if the break out FAILS, then a reversal of greater momentum would be initiated. This 2nd trade would not only cause you to break-even on the initial order, but actually reverse your position and give you the ability to capture that false break-out reversal.”
If you followed this ‘swing-trade’ strategy, you would have broken even on the first buys at $3,435 and then gotten SHORT at this same level. As we can see, this strategy has paid off since have had a small gap lower into the $3,340 — $3,380 range.
The exit from this trade is where it gets tricky. Our good friends at Fundstrat put out a very thorough piece yesterday, titled “CRYPTO TA STRATEGY: Cryptocurrencies at risk of breaking the Q4 lows”, that gave us some defined price targets. Here are the key points from their report:
- Another important retest of support — Crypto currencies are approaching another key inflection point, as they retest their Q4 lows within downtrends that began in early 2018.
- Price structure is weak heading into retest — A successful retest of the Q4 lows developing into a double bottom price pattern remains a possibility, but the price structure for most cryptocurrencies remains weak and appears vulnerable to a pending breakdown to lower lows. The charts below illustrate our proprietary FS Crypto FX250 A/D line, a measure of breadth within the 250 small-cap crypto currencies, which is at risk of breaking to new lows. Slide 4.
BTC testing its long-term trend at its 200-week sma — In mid-December, we highlighted the possibility that BTC might begin to bottom at its rising 200-week sma, a level around which other risk assets have often bottomed during bear markets. The S&P’s response to its 200-week sma in December is case in point. However, the lack of upside follow through by BTC from its December lows is a concern, particularly given most other risk assets have since surged AND while the US dollar has weakened in 2019. Slide 11
- Key BTC and ETH levels: A break below the Q4 lows at BTC 3100 would imply a decline to 2270 while a move above BTC 4200 is needed to signal BTC is beginning to improve. Similarly, a decline below ETH 100 would signal a decline to 80 while a move above ETH 110 should support a rally to 130. Slide 10–17
What stands out to us in these key points from the Fundstrat report is the downside price target of $2,270!!! In our Silver vs Bitcoin Bubble Analog, BitOoda has stated $2,400 could be the next low if this selloff continues. It seems our rough analysis vs Fundstat’s very precise calculations are in alignment. Only time will tell…