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Add to Bitcoin Positions on Panic Selling

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We had recently written about a likely bottom in bitcoin, however, the pullback was shallow and the cryptocurrency is on the verge of a breakdown once again. While it is difficult to pinpoint an exact bottom, we can estimate the process of a bottom formation.

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Key observations

  1. Bitcoin is looking weak and is likely to fall further
  2. The RSI has entered into the oversold territory, which has historically been a good buying opportunity
  3. If the RSI falls below the current levels of 28, it can fall to 25 and 21
  4. We recommend buying bitcoin close to $5,500 to $5,800 levels for the long-term

Markets became frothy in 2017

In 2017, the mood among the various investors, be it stock market or cryptocurrencies was upbeat. Both were on a scintillating run, though the stock market returns paled in comparison to the cryptocurrencies.

Nevertheless, dips proved to be shallow and pullbacks always made new highs. Various analysts projected lofty targets and the media wrote stories about the riches earned by the investors in cryptocurrencies.

This led to a new breed of greedy traders who believed that the stock markets and the cryptocurrencies were never going to correct. This led to reckless investments using borrowed money.

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Markets have entered a risk off phase

Experienced traders know that parabolic rallies are unsustainable. Therefore, in 2018, first, the cryptocurrencies entered into a profit booking phase, which later escalated into a full-blown selling by the traders who were stuck with long positions at higher levels.

Similarly, the stock markets, which started the year on a high note, have corrected sharply in the past week, which points to a shift in investor sentiment from risk on to a risk off mode.

We may see one more leg of panic selling

With cryptocurrencies falling, the news of hacking in Japan, the crackdown on anonymous cryptocurrency trading in South Korea, card companies prohibiting cryptocurrency purchase on credit cards are all news that are likely to create more panic.

In this panic, the weaker hands are likely to sell aggressively fearing a complete loss of capital because the media starts to highlight the bearish views of analysts.

What levels can the panic selling drag Bitcoin to?

In our previous article, we had highlighted how the 200-EMA had acted as a strong support for long-term purchases in 2017. We expected the moving average to hold this time also, however, it failed. Now, we want to look at another possible indicator, which is flashing that a likely bottom is around the corner.

In the past three years, there have been seven instances when the declines pushed the RSI into the oversold territory below 30 levels and on all the occasions Bitcoin either bottomed out on the same day or entered into a bottoming process. These panic selling’s resulted in a low, which was a good time to buy for the long-term.

Bitcoin bottoms coinciding with a low on the RSI

SN Date RSI low
01 September 14, 2017 27.2421
02 July 16, 2017 28.4791
03 August 02, 2016 21.0585
04 January 15, 2016 25.747
05 August 18, 2015 21.1003
06 April 15, 2015 29.1537
07 January 17, 2015 25.0161

How low can prices fall from the current levels?

At the current levels, the RSI has already entered into the oversold territory as it is quoting at 28.0556 levels. In the previous instances, we have seen that if the RSI doesn’t bottom out at 28 levels, it then falls to 25 and thereafter to 21 levels.

If bitcoin doesn’t find support close to the major support level of $7,500, which is also the support line of the descending channel, then the next stop on the downside is $5,511 levels. Also, the slide from $7,500 to $5,500 is likely to be a quick one as the longs liquidate in a state of panic. That is likely to sink the RSI further lower towards the levels which have previously resulted in a bottom.

Therefore, we believe that the long-term investors should invest about 40 percent of their desired allocation in the range of $5,500 to $5800.

Will this start a rally in Bitcoin?

Not necessarily.

After such a sharp fall, we are likely to witness a process of bottom formation, which will result in a few volatile days of trading before the cryptocurrency embarks on the next uptrend.

Therefore, this purchase should be undertaken by the long-term investors only who want to own Bitcoin for a few years.

Traders should stay calm and buy on panic dips

Though we all have heard to buy low and sell high, doing it practically is very difficult because you have to go against the herd.

Buying when the sentiment is negative and when there is fear among the traders is not easy. However, history shows that such panics usually result in a good buying opportunity for the long-term traders who purchase and hold their positions.

Recommendation

Bitcoin is likely to decline to the $5,500 to $5m800 levels in the next few days, if the $7,500 level breaks convincingly. That is likely to be a level that is close to the bottom.

Therefore, long-term traders should buy around 40% of their desired allocation at those levels and hold. We already have about 25% of the desired allocation purchased in the range of $8,600 to $8,900. That brings the total buy to 65%.

We shall update on when to buy the remaining position.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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3 Comments

3 Comments

  1. TomBrazil

    February 5, 2018 at 5:40 pm

    Best post so far. Thank you! Good timing.

  2. MinerMatt17

    February 5, 2018 at 5:50 pm

    Yes, indeed, excellent post.

  3. cryptoking787

    February 6, 2018 at 3:39 pm

    Well done. This is why hacked is worth it

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Trade Recommendation: AUD/INR

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The Australian Dollar/Indian Rupee pair (AUD/INR) ignited its bull run in September 2010 when it breached resistance of 42. This activated the cup and handle reversal pattern on the weekly chart. The breakout attracted trend followers and breakout buyers. The increased buying activity sparked a run that saw the market climb to 62.419 in September 2013. In three years, the Australian Dollar grew by over 48% against the Indian Rupee.

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At this price point, the market flashed bearish signals. A bearish divergence was spotted on the weekly RSI. Also, bulls failed to close above 60.00 on the weekly and monthly charts. This indicated that bulls were exhausted. Those who understood these signals took profits.

The heavy selling pressure drove the pair down to support of 54 in January 2014. While AUD/INR managed to bounce, it could only go as high as 57.553 in August 2014. The lower high killed the market’s bullish momentum. This triggered a selling frenzy that activated the head and shoulders pattern on the weekly chart. As a result, the market plummeted to 45.847 in October 2015.

The pair has been rallying since. This could be your chance to buy the breakout.

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Technical analysis show that AUD/INR is looking to take out resistance of 51.60. This comes after the pair generated a series of higher lows with the most recent one at 48.388 in December 2017. The breakout would trigger the huge ascending triangle pattern on the weekly chart.

The strategy is to buy the breakout at 51.60. As long as bulls stay above 51.00, they have all the momentum they need to climb to our target of 57.60.

The process may take more than six months.

Monthly Chart of AUD/INR

As of this writing, the Australian Dollar/Indian Rupee pair is trading at 51.215.

Summary of Strategy

Buy: Breakout at 51.60.

Target: 57.60

Stop: Close below 50.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.7 stars on average, based on 168 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Trade Recommendation: Gifto

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The Gifto/Bitcoin pair (GTO/BTC) started to look bullish on January 3, 2018 when it took out resistance of 0.000025. This activated the small rounding bottom pattern on the daily chart. Also, the breakout attracted a lot of momentum that skyrocketed the pair to 0.00007499 on January 12. In a little over a week, the pair rose by almost 200% in value.

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At this price level, the market flashed bearish signals. First, the market was extremely overbought. Also, a bearish divergence can be spotted on the RSI. Plus, the market has grown so fast in a short time frame. Savvy traders who bought the breakout saw these signals, so they took profits.

The heavy selling drove the market back down to support of 0.000028 on February 2. From there, GTO/BTC rallied back to 0.00007 resistance on February 15. Once again, the pair succumbed to selling pressure as it dropped to the 23.6% Fibonacci level on March 7. While the pair broke the support of 0.000028 on March 29, bulls came to the rescue and pushed the market close to 0.00007 resistance on May 3.

Technical analysis reveals that GTO/BTC is locked in wide range between 0.000028 – 0.00007. Bulls come out when the market hovers around the 23.8% Fibonacci level. On the other end, bears flex their muscles at the 78.6% Fibonacci level. We’ll follow their lead to generate a profitable trade.

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The strategy is to bottom fish the market and buy as close to 0.000028 as possible. If bulls preserve this support, the pair will likely move back to resistance of 0.00007. However, it would be best to start taking profits at the 78.6% Fibonacci level or 0.000058. Charts show that bulls have a hard time going above this price area.

The process may take a month.

Daily Chart of Gifto/Bitcoin on Binance

As of this writing, the Gifto/Bitcoin pair is trading at 0.00003418 on Binance.

Summary of Strategy

Buy: As close to 0.000028 as possible.

Target: 0.000058

Stop:  0.000026

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.7 stars on average, based on 168 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Trade Recommendation: Intact Financial

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Technical Overview

  • Since double-bottoming in 2008 and 2009 at $26 (violet horizontal trendline in Figure 1), Intact Financial (IFC.TO) has enjoyed a four-fold increase. During the 2013, 2016 and 2018 corrections, the stock found support at a long-term trendline (support – green trendline; retests – green arrows).

Figure 1. IFC.TO Weekly Chart

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  • Zooming in, after topping in November’17, IFC completed a H&S pattern (tops – yellow ellipses, neckline – yellow trendline in Figure 2).
  • In January, March, April, and May, all up-moves halted at a well-defined short-term resistance (red trendline). Yesterday (May 25), the stock managed to break and close above the resistance.
  • Today, the stock closed in positive territory, whereas the Financial sector (TTFS.TO) declined by over 0.5%.
  • The $95 level had served as support on multiple occasions in 2018 (purple horizontal trendline and arrows).

Figure 2. IFC.TO Daily Chart

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Implications

  • The bounce off of the long-term support and the break above the short-term resistance are considered constructive.
  • The stock is expected to find support in the $95 – $96.50 range during pullbacks (i.e. at the red and purple trendlines).
  • The downward target from the H&S pattern was nearly met during the May decline (target – $92.25 – white vertical trendline in Figure 2, May 9 low – $92.65 – last purple arrow).

Outlook

  • Short-term bullish as long as the stock remains above $95
  • Long-term bullish as long as the stock remains above its long-term support (green trendline in Figure 1).

 Trade Recommendation

  • Buy the stock at current levels ($97.50 at EOD on May 24).
  • Target: Half at $101 (the January low which served as resistance in March – second red arrow). Other half at $108 (origin of the late 2017 decline).
  • Stop: Half upon a close below $95. Other half upon a close below the long-term support (currently at approximately $93.50).

Disclosure: No position yet but may initiate at any time. Will likely recommend the stock to my clients as a potential play within the financial sector.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.8 stars on average, based on 12 rated postsPublished author of technical research. In his work on price “gaps”, published in the 2018 International Federation of Technical Analysts’ Annual Journal, he developed a new technical tool for analyzing and trading the “gap” phenomenon – the “K-Divergence” (http://ifta.org/public/files/journal/d_ifta_journal_18). Besides obtaining a Master in Financial Technical Analysis, he has completed a BBA and an MBA from the Schulich School of Business in Toronto and has completed all exams for the CFA, CMT and CFTe designations. Currently, providing research to investment management and financial advisory firms. http://www.linkedin.com/in/konstantindimov




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