State of the Market - 2019.3.18

Is the Nightmare Over?

Have the crypto markets hit bottom?

Here is a quick rundown of the cryptocurrency market performance from 2017 through 2018. . . . Bitcoin down 84%. . . .Litecoin down 95%. . . .Ethereum down 94%. . . . Ripple down 93%. Ouch. Let me put this another way. A 20% down payment for an income property in this market is about $40,000 to $50,000. If you took that money, and put it all on Bitcoin at the peak of the market, which clearly people did, you would have $8,000 and no rental property. Double ouch.

Cryptocurrencies require a really high risk profile. . . .or perhaps just forget about the risk profile. That’s the approach that seems to work for degenerate gamblers. It’s something that I struggled a lot with in early 2018. I put too much credence in past high values. When Bitcoin dropped under $10,000 for the last time, I thought, “Okay, $9,000 is a 10% bargain because it was just at $10,000. This is a good buy.”. No no. It turns out, that’s not a good way to play these markets.

My approach now is to have no attachment to the price. Bitcoin is currently trading at $3,966. I fully believe that the two week price range for Bitcoin could be $3,000 or $5,000, or anywhere in between. The key is to make a plan for either scenario.

What’s happening now?

In December of 2018 most of the major cryptocurrencies hit their lows. Since then, things have made steady positive progress. The question bouncing around the markets now is “have we hit bottom?”.

Personally, I don’t know. Maybe. Maybe not. I’m emotionally ambivalent to either outcome. Looking at the data objectively, however, there are signs that we’re set to enter another bull market. Because so many of the other cryptocurrencies mirror Bitcoin’s movements, I’m just going to focus on Bitcoin (BTCUSD on Coinbase). Keep in mind that the other coins usually make more extreme movements either up or down. Litecoin has been a separate case, and I’ll go over that at the end.

Bitcoin Technical Analysis

Below is the daily chart for Bitcoin with a 50 day moving average (blue) and a 200 day moving average (red). As you can see, we’re still no where near a 50/200 MA “Golden Cross”. However, I’m not particularly holding out for that to happen. It’s only happened once on Coinbase’s records. That bull market went from November of 2015 until March of 2018.

 
BTC Golden Cross.png
 

What I’m more impressed by is a cross on the 25 day exponential moving average and the 50 day exponential moving average. That actually has happened. It occurred a few days ago. Below you’ll see the same chart going back until 2017. The Green line is the 25 day EMA and the Purple line is the 50 day EMA. As you can see, there hasn’t been a positive break since August of 2018, and that was not sustained for more than a few days. How much longer will this current bullish crossover last?

Pay close to the low prices in September of 2017 and December of 2018. Both bottomed out at $3,000. Bitcoin hasn’t been below $3,000 since August 5th of 2017. That price is hugely important with maintaining the current pricing structure of Bitcoin. It it breaks there really isn’t a lot of support below.

 
BTC 25-50 EMA.png
 

The Next 30 Days

The chart below has a couple things going on. First, the Red line is the lowest price point Bitcoin has hit in 18 months. The Green line is a local ceiling, that Bitcoin has failed to break on three attempts stretching back to December. The Purple and Orange lines interact together. They mark the higher lows that Bitcoin has achieved throughout the month of February. As you can see, every time the price drops, it doesn’t drop as much as it did the time before. That’s important to show lines of support.

What we have going on is increasing support pointed at that green line of resistance. I’m going to do a couple things here. First, I’m going to layer in some buys near the purple line. I’m also going to layer in a buy over the green line. If it comes to it, I’m also going to layer in a buy just above the red line. If this is indeed the start of another bull market, the key will be to buy near lines of support. We might just need to transition out of “sell the highs” to “buy the dips”.

 
Ascending Wedge.png
 

What’s Up with Litecoin?

Litecoin has had some really interesting price movements since December. The price bleeding stopped around $20. Within 90 days, the price rebounded 200% and broke $62, before stalling out. At the time of this writing Litecoin is at $58.82. Does Litecoin have another 200% gain in it?

After looking at the charts, I don’t think it does. Litecoin is hitting some serious overhead price resistance. The Purple lines indicate an ascending channel that Litecoin has been in since early February, after it exploded from the $30s in a single day. As you can see, the bottom end of the channel hasn’t been touched in a few days. I’m not ready to completely concede that this is a bull market, so I expect a retest of the low $50s, hopefully the high $40s, before I layer in more buys.

Another thing Litecoin has to battle against is the resistance line (Orange) at $63. Litecoin hasn’t been able to break through that barrier, convincingly, in quite a while. Will Litecoin be able to do without some type of price pullback? Daily RSI is 63.5 and the MACD is almost 4. For the uninitiated, those numbers are meaningless. Suffice it to say, they’re both 10 month highs. Again, I don’t think it has enough gas. I’m going to watch it, buy at $50, and change my mind if the price closes above $63.50.

 
LTC.png
 

I’m going to make these “State of the Market” posts a weekly staple, so check in next week. We can all see what new chicken bones I have to read. Also, more stuff coming this week! I’ve got a few ideas.