Saturday, March 17, 2018

Bitcoin's ‘Death Cross’ Looms

This won't mean much to Bitcoin buyers who seem to think investment and trading principles don't apply to Bitcoin, you see Bitcoin levitates and those who bought Bitcoin at $19,783 are just "down a bit," but, as Bloomberg notes, Bitcoin’s 50-day moving average has dropped to the closest proximity to its 200-day moving average in nine months. Crossing below that level -- something it hasn’t done since 2015 -- signals fresh weakness to come for technical traders who would dub such a move a "death cross."

Not all technical analysis is sound but analysis that measures buying momentum and exhaustion, such as the death cross, does tell us about current buying exhaustion, something I  warned about when Bitcoin was trading at $15,000, I wrote on December 21, 2017 in the EPJ Daily Alert:
Over the last two weeks, Bitcoin has climbed to near $20,000 and is now trading in the $15,500 range. This trading strikes me as significantly different from the trading in the period just before this.

Among the four potential factors that I have listed that could bring the price down was buying exhaustion.

Since e-currency buying is completely driven by new buying rather than any underlying fundamentals, once the buyers stop coming the price will collapse. Current trading suggests that this may be exhaustion price activity. There may be some added buying coming in over Christmas as "bitcoin geniuses" sit around the Christmas tree telling their friends and relatives how easy it is to make money in Bitcoin but that could be the last upward draft. But I am not waiting around. It is time to take profits.

I identified the new "American run" in Bitcoin at around $4,000 anyone who was aggressive enough to buy at that time has very huge profits. The same thing with my mention of ethereum at $250 and again at $400,  It is now trading at $790.

There may be more upside in the future but e-currency is a very high-risk investment in the first place and it is now getting riskier. I'm out.
The current exhaustion in Bitcoin buying is now even more serious than when I took profits just before Christmas.

One technical analyst,  Paul Day of Market Securities Dubai Ltd., says further downward action could take Bitcoin down another 76 percent to $2,800 and that could very well be the case.

But, further, underneath this technical action, there are weak fundamentals largely based on the likelihood that more government regulation is coming that will hamper Bitcoin.

Look out below.

-Robert Wenzel 

1 comment:

  1. I have some difficulties with the notion that the 200 day moving average is some sort of line in the sand for bitcoin. Adherence to moving averages generally occurs over many years and many tests of many different moving averages. Grains, for instance, tend to have strong support and resistance at or around the 100 day moving average as this is the one technical indicator that the otherwise entirely fundamentals-based commercial grain trade tends to follow.

    Sometimes, however, one well known trader can popularize and legitimatize a moving average. For several years, crude oil exhibited strong pivoting action around the 10 day exponential moving average after an offhand comment made by Paul Tudor Jones to a room full of CTAs and global macro guys.

    Moving average crosses that "work" tend to be price levels that attract stop orders. And the reason that these price levels attract stops is that they have resulted in at least some level of success in the past. In other words, moving average-based trades at known price levels tend to exhibit reflexivity.

    The problem with the 200 day moving average prediction by this guy in Dubai is that there is not yet a basis from which to judge its viability. Bitcoin hasn't enough history (opportunities to test one or another moving average) for there to be any reliable price levels collecting stops.

    Looking at a chart of bitcoin, I see that it spiked down to the 200 day moving average on two occasions over the life of the market (based on data from Coinbase). That is probably why the guy in Dubai picked it as the number for his "death cross". He's either short at these levels (or below) or plans to get short somewhere above there.

    Bitcoin is still a very new market and it's subject to all sorts of manipulation. A few months back, main stream media ran a story about South Korean regulators shutting down bitcoin exchanges. They ran the same story three or four days in a row. Every time they ran the story, the market got whacked. This week, Google decided to no longer accept advertisements promoting bitcoin and/or bitcoin trading and the market broke. This is a market being manipulated by players far bigger than you and me. The sort of shenanigans we are seeing (both upward and downward) reminds me of a chapter or two from Reminiscences of a Stock Operator.