BTCUSD Secular trend
In order to assess the trend direction of a price we tend to use a relatively low number of indicators and as you will see in the list below, they are quite simple and popular as been around for long time:
- Classic Trendlines
- 4 Simple Moving Averages and 1 Exponential Moving average
- The standard Relative Strength Indicator
- Bollinger Bands with non-standard settings
- Standard Ichimoku indicator, but only to assess support and resistance Clouds
- Finally our most preferred indicators: FIBONACCI Fans and Retracement lines and levels
For the secular trend we usually use Monthly and Weekly charts. Moving down in time intervals (Daily, 4-Hours, 1-Hour and 10-minutes) we are usually able to spot the price moves that can affect the main trend. In fact, it all begins at a lower time interval and if the signal is consistent, we expect to see it affecting the upper intervals. 90% of the time we use a 1-hour chart to confirm the 4-hour time frame signal which in turn confirms the Daily chart, up to the Monthly chart. The 10-minute chart is a bit too “noisy” and mostly relevant to very short-term traders, although it helps spot a change if one traded on a 1-Hour chart signal.
BTCUSD WILL FALL RAPIDILY TO 14,000?
With this said, let me outline BTCUSD Technical picture. For the purpose this is a weekly chart:
2021 began with a tremendous bull run as it did for the past 3- years confirming the Secular uptrend that began in January 2019 (after the 2018 Bear Market Trend). However, 2021 is characterized by the adoption of Cryptos by institutional and professional investors coming from what is called traditional finance. With this event, Cryptos have inherited the liquidity and volatility that come with large amounts that professionals are able to trade in just one transaction, but the market also adopted the cycles and the habits that come with these people. To name some, a Monday to Friday weekday and a January to December performance assessment.
Generally, after a very strong bull rise at the beginning of the year is followed by a cyclical set-back in prices and what pros call the “Sell in May and Go Away”: After a profitable first quarter many investors tend to lock-in profits for the year. And as seen throughout history, they begin unloading positions by end of March (which is also the end of the Japanese fiscal year) continuing all through April. This contributes to build a top which then drives other investors to sell further, bids disappear from the market and in May begins the actual drop. Which in the case of BTCUSD it ended in July, with June as the bottoming month.
The 28,000/30,000 Support area held very well, challenged for nearly two-months, it builds a nice bottom to support the second bull run of the year that brought BTCUSD to an all-time high of around 69,000 in December 2021. And it is unfortunately here that we see have seen the technical picture deteriorating very quickly.
First and foremost, the top posted in the first week of November has an inverted V-shape (instead of a U-shape) which indicates that there was huge selling interest and that the buying power was not sufficient to test the top like it happened for more than one month in April. Furthermore, the curve of RSI indicator recorded a lower high compared to June/July, signaling what is called a divergence between the price chart and the RSI line. This was the first indication of a sell signal, following the double top that BTCUSD is showing on this chart (for info, when we have a 3-top RSI divergence it is usually an extremely strong sell signal).
Another negative indication came with the fact that the price dropped to 41,500 in only 3-weeks, showing that the market was extremely uncomfortable holding long positions.
As a matter of fact, by the end of November we have issued a warning to our private followers to liquidate entirely their Financial Assets (Stocks, Bonds, Structured Products and Cryptos) and cash everything into USD, CHF and GOLD. It is absolutely not a common advice as we generally suggest to rotate investments towards defensive assets. The only time we made this suggestion in the past was in November 2000 (1-year too early) and May 2007 (6-months too early). The reason that brought us to this serious call lies in the fact that all our Technical, Fundamental and Behavioral indicators are flashing red, all at the same time.
Now back to BTCUSD you can see from the chart that we pulled a blue trendline that acted as a rising support and it held the price of BTCUSD above it for most of December. More or less at the same level the 50 Moving Average of The Bollinger Band acted as support as no weekly bar closed below it since November low (a break of the support is confirmed only by the closure of the price below it).
If you recall most comments in December tended to favor a renewed wave of purchases by the start of 2022…This did not happen and as of the first days of the week the BTCUSD went through those 2 supports with ease and immediately hit 40,000 where we have the second blue trendline acting as support and which has held up the strong bull run since October 2020. As you have probably read everywhere at 41,000, we also have the red horizontal trendline that acts as neckline of the infamous Head & Shoulder topping pattern.
Many seem to believe that we now have a chance to see another leg up, after bottoming here at 40,000, just as it happened after July bottom which contributed the raising blue trendline.
Why Crypto Financial Services team believes that this will not happen and that BTCUSD may drop potentially to 14,000?
- First and foremost, history shows us that when market expectations are bullish for the beginning of a year and the first weeks are negative there is generally a follow through in the trend.
- As we mentioned in our list of indicators, we use the Ichimoku indicator mainly for its accurate support and resistance clouds. The BTCUSD price closed last week inside the cloud and will most probably do the same this week.
- We also believe that the first Blue Trendline that broke in December is in fact the neckline of the original Head & Shoulder. Generally, when a trendline breaks after the initial sell-off we have what is called “trader’s remorse”: traders push back the price to the breaking point before resuming the target of the pattern. If this does not occur it means that the trend in the direction of the breakout is too strong, basically there is too much selling interest.
- Last but not least our Bollinger Band Indicator posted a strong SELL SIGNAL on OCTOBER 21, De facto officially beginning the current BEAR MARKET. For this reason, we are monitoring on a daily basis this same indicator to see if and when it will reverse the sell signal. Unfortunately for such an event to happen the BTCUSD needs to break 40,000 or needs to build a bottom around 40,000 for at least 2-months and allow the lower Bollinger Band to rise sufficiently.
Break of 40,000 will drive price straight to July support at 28,000/30,000 which we suspect will not hold long because of the panic factor and head down to 14,000 the target of the second Head & Shoulder pattern which is easy to calculate from its neckline.
Technical reversal conditions:
On OUR Daily Chart: Price Needs to hit the lower Bollinger Band, followed by a cross-over of our proprietary Moving average with the Exponential Moving Average.