The downward sloping wedge that we have been watching BTC form on the chart finally broke yesterday, within hours of writing our Recommendation: Buy October Strangles afternoon report. BTC has exited is contraction phase, and is now in a range-expansion phase, looking to find new levels of support to the downside, with the old support level of ~$9,300 likely converting into Resistance. We believe BTC has been in a bull market ever since it broke above $6,000 in mid-May. While we see current price action as a correction, the depth of it can be large. As a reference, we remain in a bull market until we take out $4,000 lows, however, we see $8,000, $7,500 and $6,000 as the closest levels of support. However, if deeper corrections are not a acceptable to you, please consider using stop loss orders to minimize losses.
Many are trying to come up with answers for the reason of this major sell-off, but for the most part we see this as a technical move we have been preaching for some time now. As we wrote two weeks ago, “The appearance of these lines converging happen to coincide with the Bakkt launch catalyst, in which we feel there is a high likelihood of a breakout below this $9,300 support or above this now ~$10,750 Resistance. Only time will tell.” We also wrote, “it may be wise to start bidding on some vol and gamma late this week into next week in anticipation of a HIGH VOLUME move and a RANGE EXPANSION or BREAK OUT of this current downward sloping triangular trend that has held true since mid-July.”
In our vol update we published yesterday, we noted that September vol was trading at 69%, October 71.5%, December 73.5% and March 75.75%. After the major crypto selloff, we saw a large jump in BTC implied vols, rightfully so. This morning, September vol is trading at 88%, October 80.75%, December 77.75% and March 78.25%. That is an increase of 19%, 9.25%, 4.25% and 2.5% respectfully.
Finally, in terms of the BTC forward curve, spreads have come in on this move lower. Yesterday morning, the Sep19/Oct19 spread was worth ~$105, Oct19/Nov19 spread ~$95, and Nov19/Dec19 spread ~ $80. This morning they are trading much lower:
These spreads have come in ~$80, ~$45 and ~$25 respectfully.