LongTerm Update: daily chart @bitstamp

chartThe market reacted from the recent low of $ 340 , because of this I think it is better to look more closely at the VWAP calculated with two months of data instead of a year, why? Well because long term VWAP is no longer functioning as a support , for this reason we will put it aside for a while.
After a prolonged decline , from 710 to 340 dollars, where the market has lost almost 50% , I believe that a rebound in prices is due and it should reach the mid-point of this bearish swing up to about $ 525 .
It is not a coincidence that at $ 535 there is the average VWAP now calculated with two months of data, consequently i think that up to $ 530 would be a normal rebound in a bearish market phase.
The RSI oscillator is recovering and when the market will reach the $ 530 price level probably the oscillator will be in the overbought zone , this could lead the market to stay lateral around the resistance to subsequently resume to fall.
In any case the volume has the highest priority above these analyses based on the VWAP and its price levels , as well as the RSI oscillator; if you begin to see a positive ratio between volumes made on uptick and downtick  then it will probably be the confirmation that a new uptrend has started, regardless of what price levels and oscillators tell us if buyers come back it is imperative to follow them.

To conclude, if i finally see a positive volume ratio (computed as usual on the 3 days chart) and a market moving above $530 i’ll open a long term trade, initially with half position and then moving to full position once i see on the 3 days chart my ALMA moving average turning positive. The stoploss will be tight because the final confirmation of a long term reversal there will be once the market will move above last top, located at $710.

Long Term Update: next stop $300

chartXBT/USD is making further downside progress below the 1-year VWAP and at this point i think that the breakout is confirmed, a move should follow towards the old April 2013 Top at $266.
I think that at $300 there will be a strong support because of the first negative deviation line of the VWAP and to reach this level, looking the bitstamp order book, we need approximately 15k bitcoins.
Adding this value to the current weekly net volume we have -25k bitcoins, a value that looking the past should provide support to the price action, a rebounce should follow from $300.

To conclude, now we are at the baseline of the giant descending triangle and it looks ominous.  It can break either way but usually downwards (70%-80% of the time) as i said in my previous update.

 

 

Long Term Update: at support

chartIn the last days XBT/USD started to break below the long term VWAP (~$445) and if it makes further downside progress the breakout will become very obvious.
It would probably be followed by a move down to the old April 2013 Top at $266 confirming the giant descending triangle that it is forming.

Such a breakdown would be very bearish IF accompanied by a dropping network difficulty as happened in 2011 during the bear market.

As you can see in the attached chart that on the two previous tests of the VWAP (December bottom at 382 and february bottom at $400) the market reacted strongly and quickly instead this time it is spending too much time around the same support, this is an indication that probably XBT/USD is going to break below it.

In case of a confirmed break below $440 for this week support level should be around $330-$350, i don’t think that XBT/USD will go straight to 266$.

So far I have been talking about bearish potential. There is still a chance (probably 20%-30%) that this potential will not be realized and that new bull market highs lie ahead if XBT/USD stays above long term VWAP. In case of a reaction from here first resistances are at $550-$580.

 

Long Term Update: daily chart last 2 months @bitstamp

chartAfter failing to stay above my weekly moving average ($616) and VWAP computed using last 2 months ($611) the XBT/USD moved back to a short term downtrend with a lower top at $631 (12 March) after the previous one of $710 (3 March); supports are now at $534 and $457 as indicated in the attached chart.

RSI is very low, very oversold and at this point i’d like to see a decent reaction at least up to the VWAP at 610 dollars but i’m not so sure about it because of the overall bearish outlook on a weekly basis. I think that the market might break below the 541$ recent low because of a big descending triangle that it is forming on the weekly chart, and moves all the way down to the $440-$450 price zone where i think strong buyers will come back for a new buying opportunity.

 

Bearish Scenario
If this market decides to move well below my long term $440 support I think it will spend there the right amount of time required to scare weak investors, forcing them to sell their bitcoins to long term experienced investors.
Where? The final bottom should be probably above the April 2013 top at $266 but as long as XBT/USD stays above my $440 long term VWAP support this bearish scenario remains only an hypothesis.

Long Term Update: 3 days chart @bitstamp

chartNot much happened since my last update ten days ago, the market volatility dropped a bit and XBT/USD is struggling to stay above 600 dollars. It is a characteristic of this market because it is composed by amateur investors they don’t have the patience to hold and after a while if nothing  happens they start to sell for eventually rebuying later. Aniway I summarize the situation as follows:

Bullish aspects:

  • Price above long term VWAP (now at $440)
  • Slope of ALMA moving average slightly positive

Bearish aspects:

  • Weak buying volume activity
  • Ratio between buyers and sellers is negative, and it has been so since December $1200 top
  • Market reactions to good news has been sluggish since january $1000 top on zynga and facebook news, this is not bullish, investors are reluctant to buy on good news.

Conclusion
I think that this market will need time to absorb the “huge confidence hit” because of MtGox fiasco but as long as it stays above the one year VWAP ($440) i’m not worried for a possible bear market coming. For who has been ruined by MtGox and its phenomenal CEO and wants to enter again in this market there are two possible strategies:

  1. buy now 100% of your position
  2. buy now 50% and the remaining 50% if bitcoin retest again my long term vwap around $450

Stoploss for both strategies could be a weak market going under $350-$400 for a prolonged period of time and a dropping network difficulty (currently on a strong rise).

Long Term Update: an improvement

chartSince my last update XBT/USD showed strength above $600 this means that the short term bearish trend is almost over but I need to see the upvolume/downvolume ratio computed on a 3 days chart becoming positive before opening a long term position.

Another positive aspect is that the ALMA moving average slope is now positive, an important bullish sign.  For an investor who wants to play very safe with their money i recommend to wait a confirmed bullish volume activity because, as I said before,  the up/down volume ratio is still negative; why? Well because it’s not enough a strong and quick spike up to $710 to erase weeks of weak market performance.

The intentions of the market to goes up must be confirmed with solid buying from investors but for who wants to try to anticipate the market i recommend to place a buy order in the $600-$620 price zone, in the short term this market should found support there, above the 3 days ALMA moving average now at $605.

Long term update: Bitcoin bottom is in

chartI attached here on the left a long term chart where each bar represents three days of market activity, as i said in the past this particular time frame is a good compromise between a weekly chart and a daily chart.
Despite the recent strong rebounce from my long term support around $420, the ALMA moving average is still pointing down confirming that XBT/USD is in a short term corrective phase inside a long term bull market because the price during last months has been always above my long term vwap, now at $430 and also above the 200 days moving average now at ~$470 and rising.

About volume activity the “volume ratio” indicator tell us that the situation is still very oversold and all the recent bearish news and the excess of pessimism among many investors let me think that probably the bottom is in but to avoid any risk before opening a long position is wise to wait a positive volume activity that should be back once a new uptrend is established and confirmed by the reversal to the upside of the ALMA moving average i use.

To conclude XBT/USD remains in a corrective phase inside a long term bull market, the rebounce should stop near $600 where there is the ALMA moving average to act as resistance level. Any strength above $600 could mean that the short term bearish trend is over and that this market is headed up again.

Short Term Quick Update

chartThe recent sell off has brought the bitcoin into some notable short term support that I believe deserves attention. The top chart above shows the BTC/USD coming into support that is defined by the second deviation line of VWAP, computed using only last 7 days of data for a very short term indication.
The bottom pane of the chart shows the RSI in oversold territory but its average is higher because of the 5k bitcoins dump just happened at bitstamp.
It would appear to me that strong support in the near term, comes in around the $500-$520 price zone while resistance is above the VWAP, now at $590.

I don’t expect to see bullishness soon, i’m still looking for a long term bottom around $420.

Long Term Update: 3 days chart at Bitstamp

chartBTC/USD is trading beneath its 50 day moving average today as I write this, that average is now at $780. Coupled with the high volume on the downside, especially in the last 10 days,  this is solid evidence for a reversal of the short term market trend from up to down.

I think that BTC/USD will drop 200 dollars from here down to the long term support, my long term VWAP calculated using last one year of data.

If I am right about this the prognosis calls the bottom should develop as a conseguence of the MtGox drama, that exchange (if we can call it an exchange…) is almost out of business, my guess is that it is down of bitcoins and with strong manipulations of the price they are trying to recover the money lost due to the malleability issue from their own customers, this practice is of course totally illegal in a regulated market, i don’t want to go in the details but looking MtGox price and volume data there is a strong evidence of such activity.

Back to our long term chart, is this the start of a bear market? I think it is too early to tell. The 200 day moving average is around my long term VWAP  so a drop under it would be the first clue that a bear market has begun. Also the other kind of average i use, the ALMA moving average, turned negative during the prolonged trading range of January.

I added a new indicator, similar to my “net volume” indicator, the only difference is that it computes the ratio between buyers and sellers and it has been remarkably accurate staying in bearish territory since November top; it looks good as a trend following tool.

For the short term i think the price is now in a congestion in the $520-$720 price zone, a strong bottom where to shake out all weak hands is necessary and very healthy in my view and  if  this event will be accompanied by MtGox going out of business indefinitely, then the bitcoin market will be ready to move up again.

Offtopic: My opinion on last MtGox Statement

I’ve just read the last statement of MtGox and the ambiguous phrasing of the press release wasn’t a coincidence of course. I’m not talking about a conspiracy to crash the market and rebuy at a cheaper price but the style of the explanation that they’re trying to manipulate their way out of a shortage of coins makes very sense to me and probably to many of you, but perhaps Karpeles wouldn’t go that low. I don’t know why MtGox is trying to damage the reputation of the entire bitcoin community but probably they don’t want to be blamed for not implementing properly their wallet customized software. I’ve found an interesting topic on reddit about the issue: ” transaction malleability”, more details here.

No need to panic guys, keep calm:)