Here is a daily bar chart that sometimes I use to keep track of a bull or bear market trend.
An interesting thing to note about this chart is that XBT/USD is below a dropping 200 days moving average (red line), a typical bear market setup. XBT/USD is also below its 50 days moving average (black line); both averages are dropping confirming the bear market.
Reactions within a bear market typically take a security above its 50 days moving average and up near its 200 days moving average. The 2014 June top is a good example of a reaction ending at the 200 days moving average and above the 50 days average. The position of the 200 days moving average should be considered as the upper limit of a rise within an ongoing bear market.
The first sign that the bear market is over would be a rise of XBT/USD above its 200 day moving average followed by a rally back to or slightly below the 200 day moving average which reaches a sideway or improving 50 days moving average; this configuration for example happened in april-may 2012 at around $5 for then climbing up to $15 in August.
Right now the market appears to be a bit away from this kind of bull market signal but not too much considering that XBT/USD can quickly rise up to or above 550 dollars (200 days average) even in a single day. This quick rise could reverse the 50 days average to the upside and in a couple of weeks reverse also the 200 days average confirming the birth of a new bull trend.
To conclude I think there is a lot of short term bearish sentiment in the market but the bullish news constantly hitting the headlines are increasing the odds of a sudden rise back to the resistances (both averages ranging from 525 to 550 dollars). Still, such a reaction might not be fatal to the bear market trend, so in any case we just have to watch the market’s behavior relative to these moving averages to draw a final conclusion about the bitcoin’s fate. I encourage everyone to add these 2 moving averages to their daily chart.
Many of you are probably asking to themselves if i suddenly turned bearish about this market, yes and no because i consider the 50 and 200 days moving average approach not a perfect one, it might be good for the stock market but for bitcoin that is a new market it might be different, Why? probably because of its insane volatility level that can quickly change the overall picture.
Personally as long as XBT/USD stays above the top of its previous cycle (April 2013 top at $266) and with a rising network difficulty I’ll never be fully bearish as i’ve already explained many times in the past.
NOTE: The attached below chart is the composite of four main exchanges: btce,bitfinex,btc-china and bitstamp.
Since my last update this market has bounced twice towards my short term volume average, this happened after the Paypal news about adding bitcoin support. The price zone from $455 to $465 is still working as support, any break below $455 would materialize my bearish scenario down to $420. The current daily cycle is still pointing there, to $420.
Paypal news is just the latest in a long series of positive news for the bitcoin environment but the market hasn’t reacted positively to these bullish news for many months, not to mention the null effect of Dell accepting bitcoins. This is definitely an abnormal behavior and it can only be explained by the low level of those who trade at the main bitcoin exchanges, they lack also of long term view on bitcoin and are here merely for short term speculation.
In my last update i’ve talked about a mandatory condition to move above $500 soon but XBT/USD failed to do so and instead drifted further down towards the $455-$465 support area. At this point the odds are for a drop down to the $420-$430 price zone, below the recent bottom done at ~$440 because the averages i’m using on the 3 days chart and weekly chart are bearish and pushing down the price.
For the next few hours because of a low reading of the RSI there could be a rebounce to $480 where there is the fast VWAP (7 days), notice how the second negative deviation line provided temporary support to the price action at around $465.
In my previous update I hypothesized that the drop of last 31 August could have been a true breakout but at the same time i was leaning towards the shakeout theory, at this point considering what happened yesterday i have to remain moderately bullish for the upcoming days but there is a condition that must be met in order to move up to the first decent resistance, the VWAP at around $550.
This condition is to move above $500 soon, better this week, because with the weekend ahead i’m worried that there could be a new stall with a subsequent drop. Where will bitcoin found support in case of a furhter drop from here? Well the support for the second part of the month could be in the $420-$430 price zone, below the recent bottom done at ~$440; this possible scenario scary me a bit because moving below the previous bottom would have very bearish implications and i prefer to avoid complications.
The #btctrading IRC channel
##btctrading is a place where many traders hang out and discuss about bitcoin market analysis. The community in ##btctrading will be mostly the same community that you’ll find here in the comments.
Download an IRC Client
A popular open-source option for Windows / Linux is Xchat: http://xchat.org
Mac users might want to consider Colloquy: http://colloquy.info
Connect to the FreeNode Network
Once you install the application you’ll want to connect to the FreeNode network. FreeNode.net is a network that is very popular with open-source development communities. Most web-development frameworks have an IRC channel on FreeNode so we’re in good company.
To connect to FreeNode set your IRC client to connect to the server irc.FreeNode.net by setting it in the client’s user-interface or by entering the following line in the input box:
From there you can join the btctrading channel using either the IRC client’s user-interface or by entering the following line in the input box:
Again I please everyone to join the unofficial channel using the double # as prefix (##btctrading), thanks.
Why? well because of freenode rules on primary channels at the moment i decided not to use #btctrading, more here.
I dunno why, but i’m not surprised to see an heavy selling activity on Sunday, probably too much bored traders at Bitstamp and/or Bitfinex; jokes apart i’m starting to be annoyed by the short term behaviour of this market, totally disconnected from the news with sudden heavy selling activities typical of an immature and unstable market and for unstable i mean the volatility level with its high variance or unpredictability as main characteristic.
Aniway $495 has been broken and now it will work as resistance in case of a rebounce, in the meantime the VWAP is quicly readjusting itself below the $500 mark.
Support for next week should be in the $430-$440 price zone, resistance at around $495-$500.
The question now is whether this is a high volume breakout that portends much lower prices, or a high volume shakeout that will quickly be reversed by a strong reaction with good volumes and the price coming back above $500. Considering the low level nature of the investor community at the biggest bitcoin exchanges, personally I am leaning towards the shakeout theory rather than toward the breakout theory, it’ll be important to see how it’ll start the next week, the first 2-3 days.
Trading sideways is when a security doesn’t make higher highs or lower lows. It just stays within the same trading range over any period of time, it’s a lull in between a bull market, when a security trade higher, or a bear market, when they are on a downward trend. Again XBT/USD is entering a congestion because it’s not too far from a period of ten days inside a specific range, the price zone from 480 to 540 dollars.
The short term VWAP is now perfectly in the middle of the trading range, at 510 dollars. The volatility of the last seven days dropped further more and so the range defined by the deviation lines, as i indicated in the chart the last tops has been made on the first and second deviation lines with the last $522 top done on a RSI divergence.
Now the rsi is forming a new divergence with an higher bottom and bitcoin price doing a lower low, it could be a buying opportunity if today or tomorrow XBT/USD drops down to $490-$495. If someone want to try to go long there because this is short term operativity the stop loss must be very tight 5 or 10 dollars at max with a target around $515-$520.
Here’s a 60 min chart of the last 7 days, after an initial breakout of the short term VWAP notice that it stopped and found perfect resistance at the first positive deviation line of the volume average. Now it is very important to stay above the first negative deviation line at $480; any weakness below this level is a good indication that the selling pressure is increasing with the possible outcome of a new bottom below the previous one did at $440.
For now, watch out the 480$ level.
In the previous update I mentioned as a possible resistance area the price zone from 480 to 510 dollars but the price has risen above my short term VWAP, i’ve to conclude that at least in the short term bitcoin has returned to a bullish position.
At this point I think that XBT/USD could test the $ 540 resistance before some profit taking will take place.
The volume on all the main exchanges is high. Usually, momentum investors prefer to buy stocks that are rising with high volume, i hope they will be back to restore bitcoin price to at least 600 dollars as it was before the recent selloff.
I expected the support at $475 to hold instead the market has dropped further more to $ 440 or so, with this decrease the VWAP average adjusted itself to $ 509 from $520 and the first negative deviation line is now at 480 dollars.
I believe that XBT/USD will eventually end the rebound in this price zone, between 480 and 510 dollars; after that it will probably resume the drop within 24-48 hours. Any strength above $510 would suggest the intention of this market to reverse to the upside confirming ~$440 as a temporary bottom.