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Analysis

Bitcoin is Close to Topping Out in the Short-Term

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Bitcoin is the toast of the town, with prices closing in on the five-figure mark. At current prices, the rally has covered a huge distance in 2017. On January 1 of this year, bitcoin opened trading at $973.37. From there, to today’s intraday highs of $9749, bitcoin has returned an astounding 901.57% for its investors. While the forecasters are quoting huge numbers for the future, we believe that at the current prices, the risk to reward ratio is skewed to the downside in the short-term.

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Key observations

  1. Bitcoin’s rally is gaining momentum
  2. Experts are competing against each other in putting a huge target for bitcoin
  3. We believe the current leg is led by the newcomers who are in for a quick buck
  4. Markets are overextended in the short-term and a correction is likely
  5. We expect the next fall to be about 30% from the highs

But, just because an asset class has risen quickly is no sign that it will fall. True. There are a few sentimental factors and a few technical factors that have led us to arrive at our conclusion.

We are not calling an end to the long-term rally

First, let us make it clear that we are not calling an end to the long-term rally yet. Calling a long-term top is a futile exercise, especially for a new technology like blockchain. Many forecasters have bitten the dust in calling a top in Amazon for about two decades. So, we shall not get into that exercise.

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However, we are calling a short-term top in bitcoin.

Sentimental factors

Exuberance is usually the final stage of the rally. Pick up any news on any cryptocurrency website and you will find forecasters dishing out astronomical numbers for bitcoin.

Agreed, there have been many recent developments across the globe that favor the blockchain technology and the existing cryptocurrencies. However, most experts in the field only talk about huge numbers without any caution about the volatility or a possible fall. Investors are being made to believe that the only way for bitcoin is up.

In a recent survey by LendEDU, a marketplace of private loans, bitcoin investors said that they will sell their positions if bitcoin neared $200,000 levels. While anything is possible in the markets, a price point that huge is unlikely to be reached within the next few years.

Such figures and astronomical targets are attracting new investors who are entering into cryptocurrency trading to make a quick buck.

Bitcoin futures trading by CBOE can be both good and bad

While most of the mainstream Wall Street has stayed away from bitcoin, it is unlikely that the introduction of bitcoin futures trading by the CBOE is going to lead to a stampede for initiating long positions.

Contrarily, we believe that few short sellers are likely to enter the fray and test the resolve of the bulls on the upside. At least for the first few days, after bitcoin futures trading starts, we may see an increase in volatility.

If the big players of Wall Street with deep pockets are able to overpower the bulls, then a fall is likely.

The chart structure points to at least a 30% correction

The reasons mentioned above are regarding trader psychology and they are debatable. Most of the die-hard bitcoin supporters are likely to put those to trash.

Hence, we put forth our finding from the charts that suggests a likelihood of a fall.

We have picked up the short-term tops in bitcoin in 2017 for our analysis. We have disregarded the dips that were arrested at the 20-day EMA and we have not considered the dips that happened without a material rally.

We have considered the intraday highs on the day bitcoin topped. For that day, we also took the value of the 50-day simple moving average.

We find that, all the short-term tops in the markets have started when the percentage difference between the price of bitcoin and the 50-day SMA was in the range of 35% to 39%.

The ensuing correction in the first three instances saw a dip of about 40%. The fourth and the most recent correction, however, was shallower at 30%.

Serial

Number

Date Intraday high 50-day SMA Price above 50-day SMA in % Ensuing correction in %
01 January 05, 2017 1175 821.75 35.38 37.47
02 June 12, 2017 2999.99 2014.18 39.32 41.39
03 September 02, 2017 4980 3461.14 35.98 40.26
04 November 08, 2017 7898 5330.04 38.82 30.22
05 November 27, 2017 9749 6694.14 37.15 ?

 

As of November 27, the difference between the intraday high of $9749 and the 50-day SMA value of 6694.14 has already reached 37.15%. This difference is closing in on the higher end of the percentage value, which has led to a correction in the past.

Even if we take the minimum correction following the top, we shall see a 30% correction, which will sink bitcoin to around $7000 levels.

Risks to our assumption

We have assumed that the market participants are in a euphoric state, however, this is difficult to gauge. If the markets are only in the optimism stage of the bull run, it still has a long way to go.

We have taken the performance of bitcoin only in 2017. This is a small sample size. The current rally may just continue higher without giving a meaningful pullback.

Conclusion

While the debate on the valuation is never-ending, we believe that the current pace of ascent is looking euphoric in nature. As the proponents have benefitted by holding through every dip, there is a sense of security among the buyers that no matter what, price of bitcoin can and will only go up.

We believe that even if bitcoin has to rise, it will break this notion and test the long-term investors before embarking on a long-term uptrend. We, therefore, recommend trimming long positions in bitcoin in phases, instead of selling all at once. We expect a short-term top around the $10,000 mark. We believe the investors can buy bitcoin at lower prices in the next few weeks.

Featured image courtesy of Shutterstock.

 

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4 Comments

4 Comments

  1. Chris G

    November 27, 2017 at 6:27 pm

    Fantastic article Rakesh, and good call on ETH – I’m largely moved out of BTC and into alt-coins. The main risk for me is correlated correction with bitcoin, so I’m in more of a defensive position atm in terms of protecting profit.

    • Rakesh Upadhyay

      November 28, 2017 at 3:23 am

      Hello Chris,

      Thank you.

      I believe it is a wise decision to be defensive when investors throw caution out of the window. Yes, we may lose a few points, but we shall also lose less when the markets turn down.

      As Jeff Saut of Raymond James says often “There are old traders” and “There are bold traders”, but “There are no old and bold traders”.

      With warm regards
      Rakesh Upadhyay

  2. jf5585

    November 28, 2017 at 1:09 am

    The last 2 times that Bitcoin corrected, wasn’t it to with the China ban and also the fork cancellation? When there are no external influences, it seems nothing seems to stand in it’s way? $10k is a milestone number which may make some people want to sell. But is looking at past corrections (which were down to external influences) to analyse the future that relevant here?

  3. Rakesh Upadhyay

    November 28, 2017 at 3:31 am

    Hello jf5585,

    You have a good point there.

    In my experience, I have found that when the markets are overextended, it latches on to some news and starts a correction and I have found that such occurrences happen at important technical levels.

    Therefore, technical analysts still get a lot of their forecasts correct.

    Hence, I would be careful at $10000.

    Notwithstanding, what you say may also be correct. $10,000 may prove to be a temporary stop after all and I might be proven wrong. Hence, I have suggested booking profits in batches and not at once. If markets continue their upward momentum, we can wait to sell the remaining positions.

    With warm regards
    Rakesh Upadhyay

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Analysis

Long-Term Cryptocurrency Analysis: All Majors Stretched as Ripple Finally Breaks-Out

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Although the previous leaders of the rally started to correct or at least consolidate in the wake of the overbought long-term setups, another batch of coins turned exponential, with Litecoin, Ripple, and Ethereum all registering lofty gains this week. Bitcoin, Monero, and Dash have been holding up well, and even drifted to new marginal highs during the period, while Ethereum Classic had a more volatile week, before moving to new highs today.

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XRP left the broad trading range that has dominated its market since May, and surged to new all-time highs while almost quadrupling in the process. As the coin was the only major on a long-term buy signal according to our trend model, and the move triggered a sell signal on Thursday, now all of our tracked coins are on sell signals.

Ripple could be in for further short-term gains but long-term investors should reduce their positions after this week’s spike. Support levels are found Major at the prior high near $0.4250 and in the $0.30-$0.32 range.

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XRP/USDT, Daily Chart Analysis

IOTA, which has been leading the market higher before is down by more than 30% off its all-time high, but given the exponential move before, an even deeper correction is likely in the coming weeks, and investors should wait until a more favorable setup to add to their positions. Strong support is only found at $3 and $1.5, but potential Fibonacci support is at $2.35.

IOT/USD, Daily Chart Analysis

Let’s see how the long-term charts of the other majors look this weekend.

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Analysis

Technical Analysis: Bitcoin Up Again as Altcoins Mixed in Volatile Trading

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Bitcoin is at a new all-time high today, although the momentum of today’s move is far below from what we saw recently, and the coin only managed to reach a marginal record high yet again. BTC is now worth $300 billion, and it is still trading right at the short-term trendline, inside a rising wedge pattern that shows a clear momentum divergence.

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With the short-term trend still being intact further gains are still possible, but as all the majors are overbought from a long-term perspective, we still advise investors to wait for a better buying opportunity before adding to their holdings. Primary support is still found near $13,000, with further levels at $11,300, $10,000, $9000, and stronger levels at $8200 and $7700.

BTC/USD, 4-Hour Chart Analysis

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 XRP entered a volatile short-term correction after its two-day surge after giving a short-term sell signal yesterday, and the coin spiked back towards $0.60 before settling down just below yesterday’s highs. The long-term setup also turned overbought thanks to the almost 300% rally, and now investors should reduce their holdings, even as further gains are still possible. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.

XRP/USDT, 4-Hour Chart Analysis

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Analysis

Cryptocurrency Analysis: Ripple Continues Rampage as Litecoin and Ethereum Enter Correction

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Ripple remained in the center of attention in the segment after breaking out to a new all-time high yesterday, and the coin almost doubled in value, climbing above the $0.80 level. The currency concluded a 6-month long consolidation pattern with the move after being the only major on a long-term buy signal in our trend model.

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XRP gave a short-term sell signal today, while turning neutral regarding the long-term setup. Investors now shouldn’t add to their positions, although further gains are still possible, and reducing holdings somewhat is a good idea here. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.

XRP/USDT, 4-Hour Chart Analysis

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While Bitcoin stagnated, and Bitcoin Cash jumped, Ethereum, Litecoin, Dash, and IOTA has been drifting slightly lower, although the recent gains are still mostly intact, and the basic setup in the segment is unchanged.

Litecoin fell below the $300 level after yesterday’s consolidation, and the coin faced strong selling pressure in the latter half of the session. The currency remains extremely stretched regarding the long-term momentum indicators, and although the short-term uptrend is still intact, a deeper correction is likely in the coming weeks, with key support levels found at $125 and $100, and weaker levels at $260 and $170.

LTC/USD, 4-Hour Chart Analysis

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