XBT/USD weekly range.forecast $430-$450 | daily moving average is slightly bearish and strong support is at $430 near the short term VWAP. XBTUSD has broken to the upside from the previous congestion range ($400-$430) although now it is a bit weak and could probably test the VWAP at $430. For today support is at $445.
Short Term Update: VWAP test
A major drop pulled XBTUSD right above my 2 months VWAP thus for now we are not going to see a stronger up move near $500. However the market might rebounce from here as happened many times in the past after a strong correction the VWAP provided support. I think that could be smart to buy at or slightly below the VWAP between $400 and $425.
In the attached chart i replaced the RSI with a Stochastic oscillator with standard settings, moreover i added the R-Squared indicator that often is useful to understand what is going on.
R-Squared
What the hell is RSquared?:) Well R-squared is a measure of association and it measures the proportion of explained variation between the linear regression and the underlying data it is tracking. For a trader this means that the r-squared calculation identifies how much closely the linear regression indicator matches the price movement. The higher the r-squared value the greater the correlation with the trending component of price.
The length of lookback parameter (14 periods in the above chart) chosen plays a role in determining the numeric level at which r-squared assumes a positive correlation with the underlying linear regression and price movement at the statistical 95% confidence level; the shorter the r-squared length, the higher the r-squared level needed. In our case a 14 period reaches a positive correlation at the 0.27 level, while a 50-period only needs to exceed a 0.08 level.
R-squared moves on a scale from zero to one. A rising r-squared indicates strength of association with a price that is trending, while declining r-squared readings suggest a weak or weakening correlation between linear regression and price, in this case the price is simply moving sideways without the presence of a trend.
In the above chart you can see that when r-squared is stalling above 0.80 a possible top is near but this doesn’t mean the price is going to crash because another option is the price moving sideways right below a top.
A stochastic oscillator is useful as a timing tool to enter short or long when the r-squared is saturating above 0.80.
Another view of stochastic and r-squared with an intraday chart
This is an H4 chart of XBTUSD, you can clearly see the cycles of the r-squared moving above 0.27 (0.27 because i’m using 14 periods for the indicator) and 0.80. It is clearly visibile the price going sideways when the r-squared is stalling above 0.80; now the r-squared is again approaching 0.80 signalling that the strong downspike is probably near the end togheter with the stochastic oscillator near oversold territory.
The yellow line is the ALMA moving average, other lines are a way to do a regression of the price and deviation lines to build a price channel.
Weekly Range Update
XBT/USD weekly range.forecast $440-$480 | daily moving average is bullish and strong support is at $420. $480 is in sight and XBTUSD has broken to the upside from the previous congestion range ($400-$430). For the very short term support is at $450.
Weekly Range Update
XBT/USD weekly range.forecast $390-$440 | daily moving average is now bullish and strong support is at $390. $450 is in sight and apparently XBTUSD is going to break to the upside the actual congestion range ($400-$430).
Long Term Update: weekly chart
XBTUSD is basically flat and my support/resistance price levels are unchanged (currently $375-$430) although price tends slightly lower after a failed attempt to break above $420 last week.
This is the same template i proposed in the last update with just a shorter period used for the average and its deviation lines. The Osma indicator is still slightly weak, also the 2 months VWAP is at $405 and flat.
In this situation the best strategy, for a short term trader, is to trade the deviation lines without relying too much on timing indicators or in simple words just buy the supports and sell the resistances.
I was expecting a stronger up swing but XBTUSD entered a sideways movement that to end requires a breakout somewhere above $430 or below $375. I’m reading many bitcoin traders analysis, most of them bearish because of the block size issue but at the moment i prefer to remain neutral about it.
Long Term Update
I decided to average down my position because XBTUSD is moving up from the newly formed higher low and this is the confirm that a new uptrend has begun. I was expecting a low in the $290-$300 price zone but bitcoin did the bottom at around $360 after the Mike Hearn news of mid January. This is very bullish IMO, a strong higher low despite a bad news and concerns about the blocksize debate.
I attach here a template i use for a weekly chart, the platform is Metatrader 4. As you can see I’ve drawn a long term price channel starting from an interpolation of current uptrend (green line) and deviation lines based on the average true range, another way to measure volatility. Extrapolating current weekly upswing i think the maximum target should be around $600 by the end of march. In the lower pane of the chart there is an interesting oscillator, OSMA, now moving to bullish territory.
If i’m wrong then this market will fail to establish a new higher high and will probably move down to the first negative line at around $290-$300, an important support area.
Long Term Update: Long 3rd unit at 375 euro ($417)
Now long with three units at an average price of 493 Euro ($549).
Short Term Update
I revised the weekly range forecast to $320-$400, this price range should work also for the next week. First support lie at $345 and is valid till sunday, then for the next week i see $320 as a good support. What is happening to btc? Well after a double top the market decided to correct a bit, at this point i think that is reasonable to expect a weekly mid-term correction that should end around $280-$300. I still think, after years, that we can’t have a prolonged bear market if the network hashing speed is constantly increasing, i’d be much more worried of a dropping network speed instead of the price that most of the time is wildly influenced by massive volatility typical of an illiquid asset like this one.
I’d like to conclude spending two words about the recent media havok about bitcoin’s future ignited by a recent open letter from a blatant liar with an inflated ego, i prefer to not enter in details but as more the media erupts against bitcoin as more bullish is the future of bitcoin itself. I like very much to use the media as a contrarian indicator for investment decisions because the entire art of speculation consists of choosing the perfect moment to invest in a way opposite to that suggested by popular opinion.
Once things settled down there will be a long term update aiming to understand if there is the opportunity in the coming weeks to average down my long term position.
Long Term Update: 2016 Outlook with entropic methods
Chek this post of one year ago for a brief explanation of the theory beyond this forecast. This year I propose again the same analysis and it will be a main guide about support and resistance levels for all 2016.
Updated values for bitcoin (in brackets values of last year)
BTC/USD | |
Growth Factor G | 1.000166 (1.000553) |
Shannon Probability P | 0.515 (0.518) |
Root mean square RMS (or volatility factor) | 0.053 (0.056) |
More or less bitcoin’s entropic values dropped a bit, with less volatility and a smaller value for the growth now 0.000166% compounded daily or 6% yearly growth down from 22% of 1y ago.
2016 Price forecast | Full volatility | Half volatility |
Forecast using only G* | 458$ | 458$ |
Upper bound adding volatility | 1257$ | 760$ |
Lower bound subtracting volatility | 167$ | 277$ |
*458 is obtained with today price (432$) times (1.000166^365)=1.06
432*1.06=458, just change 365 with the number of days you prefer for a different forecast.
For a more aggressive forecast you can use 1.001742 instead of 1.000166, this bigger value for growth doesn’t consider measurement error due to the short dataset I used, only 1145 days of historical data. Use this bigger value at your own risk:)
Conclusions
As usual i recommend to consider the support/resistance levels obtained with a halved volatility value thus for 2016 btc has an high probability to stay inside the $277-$760 price zone with a strong support at around $170 in case of panic selling.
At the same time i think that at the end of a strong buying climax period it’ll be hard to see btc price above 1250$ and very unlikely if not impossible to see it at or above 3400$ (using twice the value of historical volatility).