Long Term Update: Capitulation

Definition for Capitulation:

When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling. 

The term is a derived from a military term which refers to surrender and it is exactly what happened here, sharp decline at BTCchina followed by europeans this morning. I am watching carefully the VWAP first negative deviation line located at $380, so far the bottom at Bitstamp has been at $382.

chartRegarding my open trade I refuse to sell in the middle of a panic selling also because the daily RSI is almost at zero, totally oversold. I think there will be a strong reaction once the panic is gone and i need this rebounce to close this trade limiting damage as much as possible.
As usual time will tell.

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26 thoughts on “Long Term Update: Capitulation

  1. fahben

    Yeah,I totally agree with that last statement.
    I have 75 BTC (bought at 640$) that I wont sell before this panic stops.
    The real concer is about Chinese reactions after what the PBOC said.
    BTC history showed us that the market will cool down and rebounce.It’s just a matter of time.

  2. Jukka Santala

    There are multiple interpretations often available from similar charts, as I noted at the time it happened though I think these events were initiated when the 1 hour RSI at MtGox depleted the support at 700 dollars that had stopped the panic selling yesterday while the support at Bitstamp evaporated making a low of 612.51 dollars. The next downswing of the hourly RSI at MtGox co-incided with 2 hour and higher RSI, so it seemed pretty normal market fluctuation, but it was also clear 700 would be broken that swing. 12 minutes after MtGox broke under 700, BTC China went into full panic-sell mode, followed by most other exchanges.
    So I would interpret it as normal market fluctuation at MtGox, which due to it’s symbolic meaning as having stopped the panic selling yesterday caused Chinese to panic, followed by other exchanges.
    MtGox’s made a nice recovery from the lowest so far, but 15 minute RSI is bringing it down right now, while 1 hour RSI has just broken out of oversold and 2 hour just about to break. Makes me almost wish I had risked and joined this upswing, as 100 dollars profit per BTC could’ve been already made, but it was too risky for me.

      1. Jukka Santala

        To be little less cryptic I think the RSI signals are pretty clear, though I probably have too much faith in them now. Also the last downswing was risky buy position even in light of RSI; because it wasn’t clear 1h RSI would break up from oversold yet. It did so the next upswing could see a lot of speculators joining in. But the main risk I’m talking about is that the price difference between BTC China and MtGox is nearly 50% of BTC China price, creating tremendous arbitrage potential. That could realize on a moments notice bringing MtGox to BTC China level in minutes. Probably during an overbought RSI of course. Though there may be some barriers to arbitrage as the 150 dollar price difference is confusing.

        Anoter risk question in current situation is whether exchanges have enough BTC or fiat currency on hand to satisfy demand if people bail out in mass. BTC China might be facing that issue first; at least if everybody wants to take out their BTC for arbitrage BTC China can buy them relatively cheap now until that action itself rises the prices; it could even be that is driving the price difference currently. People trying to cash out their fiat money in mass could be tricky if the exchanges have substantial amount of their assets in BTC however.

  3. Hi Enky, good job on this blog, even in capitulation time.

    on this chart http://bitcoincharts.com/charts/mtgoxUSD#rg360ztgSzm1g10zm2g25zi1gRSIzv the rsi is about 30, what’s the difference with yours?
    I cannot find a free chart with the VWAP indicator, do you know one?

    To all of you, don’t sell. It’s not just a matter of today profits, bitcoin is a revolution!
    I bought my actual bitcoin asset @ about 600$ average so i know it’s diffucult to stay in, but i strongly believe in the bitcoin over the long term and this give me the reason!

    1. Enky

      that rsi is probably using std value, 14 for period, here it is a bit different, i use 8 period and a moving average applied to it.

    2. Jukka Santala

      My impression is Bitcoincharts uses non-weighted values for RSI, which opens it up for all sortsof manipulation and errors, and of course the lengths can’t be set. Enky’s graph is volume weighted average, which is a lot more accurate.
      If you use Bitcoincharts, StochRSI is a lot more useful and closer to what Enky uses, as I’ve mentioned before: http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:stochrsi I still find the Sierra Charts Volume Weighted one much more sensitive, but the advantage is on Bitcoincharts you can look at different time steps in a few seconds, while Sierra Charts takes minutes to calculate them and can’t even do it on BTC China data for me.
      The VWAP with standard deviations is kind of impossible get from free charts right now.

  4. Derek

    What i see is an exact copy of the Nasdac bubble explosion, selle all now Enky, stop losses, it will stop at 390 dollars thats when we have to buy again, and u know it my friend.

    1. I am not a trader able to say: “it will stop at 390”
      What i think it’s that bitcoin price in one year will be higher so i am staying in.
      Don’t you think?

      1. Jukka Santala

        A year is a long time to predict; for real speculators there’s also the issue there are thousands of other stock where they can say with higher certainty (Because they’re known, familiar territory to them) that they will rise. BTC China started growing by leaps and bounds though, so I expect there was some positive news, probably an alternative way of financing Bitcoin purchases. MtGox did not follow, and arbitrage bomb has so far not been dropped despite arbitrage profits declining. MtGox is still deeply on 1h+ RSI sell-territory though, so I’m expecting downturn any moment now.

        Next bigger risk is, as said, if it turns out BTC China is unable to pay off withdrawn BTC or yuan; there is very real possibility of this as speculators have no doubt been cashing out either or both of them like crazy since new yuan deposits vere prevented. MtGox has better situation as the withdraw queue has been months anyway, so it would take months for most people to notice if they ran out of funds, leaving them time to sell BTC at higher price. But if it happens to one of the big three, people will reason it can happen to any of them and panic.

      2. xenoky

        I haven’t strong financial background i am a computer engineer and to me long term is easier to predict.
        I am not saying in one year the bitcoin price will be 2562$, I am just strongly believimg the direction is up because it is a new disruptive technology that has many real advantages over conventional methods.
        Looking this way, also the Chinese decision to stop deposit on exchange is a confirmation of the bitcoin power

      3. Jukka Santala

        If you’re computer engineer then you know there’s even bigger reason to be wary of Bitcoin: There is not a single example of a disruptive technology where the first incarnation was the winner. That’s why we don’t search the Gopher net with Archie on our Mosaic browser while sharing our files on Napster, banal one-liners on IRC and our lives on LiveJournal while listening to MP3.com tunes on our Nokia phones. And Bitcoins by design can’t be improved upon without starting from scratch. That said there have been several abortive attempts at decentralized cryptocurrencies among cypherpunks, so maybe it’s an idea whose time to stick has finally come; though I somewhat hope not because Bitcoins are ecologically unsustainable with other major drawbacks. There are now closer to 100 alt-coins most of which are technically superior to Bitcoin, but there’s no reason to think this is the architecture which will stick even if people decide it’s a good idea.

        Besides, it just came out in the public that FBI and hence the US government is one of the very largest owner of Bitcoins presently, thanks to what they confiscated from SilkRoad and possibly elsewhere, which may put another stopper on the “progress of humanity to a new freedom age” and all that 🙂

    2. computer

      @Jukka Santala

      Ok, Boy try to break the code of 8000 Terrahash/s, what is going to multiply with 10 in the next year and say again thats bad technology. The fact that moores law is behind the bitcoin technology is enough for centuries.

      Boy, the FBI Stories. A new smells like teen spirit 9/11 spam?

      You are a troll without education or smartness. Try harder…

  5. I agree about limiting speculation and holding a longterm accumulation sentiment. A little sacrifice for the cause is nothing compared to where our forebears had come through. We need widespread adoption/accumulation to break the yoke of debt slavery of the centuries old criminal cabal of monopolised money changers. Any idea on what price we’re talking about for capitulation on this?
    Trying to use bitcoin solely to make a quick buck is part of the old slave paradigm and will only slow revival and the progress of humanity to a new freedom age. Spend and buy more, adopt and spread the word. There are much greater benefits to BTC than the speculation on expected volatitlity. With greater adoption and time, stability and value will only increase.

    1. Enky

      I agree with you, but WITHOUT big institutional investor it will be impossible to reduce the volatility level. Also the various exchanges are responsible because they are managed by amateurs. They should add trading halt procedures in case of big drops etc.. 20% drop? 4 hrs trading halt and so on. Not to mention the total lack of market makers.

  6. Derek

    I definitely agree with u … and i stayed in as long as i could. Now i’ll buy em back at 390, not before. and i can ASSURE u it will go this low

    1. Tamis

      Wrong ! I love the cristal ball style of your prediction 🙂

      I can ASSURE you I love seeing how wrong you are !

      1. Derek

        But u know I’m so right baby 🙂
        Just live it with your own eyes tonight 🙂 what can I see muahahahah oh yea. I’m Russian ! 😀

  7. Ami

    Enky, How do know when the panic sell is over?
    I can see it got to 620 and then go down to 550 again,
    Are we still in a panic mode? (:

    1. Enky

      i’m hoping to see prices above 630, but so far the resistance worked. I’m still deciding what to do with my trade.

    2. Jukka Santala

      On 2hour graph it bears strong resemblance to the first China decision fall, two big drops with both followed by two small rebounces. On the first time the price started a strong rally after the second rebounce of the second fall.
      However there’s less reason to think it will do that now because money flow to BTC China has been cut off; the first time was more psychological, this one seems to really cut at the liquidity of the market and possibly the exchange itself.
      I missed joining in on this latest rebounce, maybe for the better since I’m still very suspicious of the large price difference between China and the rest, while there’s always been relatively high difference between the exchange prices, that to me is very alarming.

  8. Mike

    Whao! Capitulation, indeed. I was watching the slide down the rabbit hole to the last seconds before I retired for the night. The volume at mtgox was stupendous… traders throwing everything but the kitchen sink. The intensity was palpable and decided to put a limit order in for something at a capitulation level. $370 – at bitstamp… initially set for 329 but raised it, hoping I’d have a good dream. Imagine my disbelief when I awoke to how close I got but no cigar… Still, the capitulation was a sight to see. The chart is trying to find the path of least resistance after the initial bounce with volume drying up. So far it seems to want to move sideways with bias to the upside slightly. … good trading folks…

  9. Derek

    You don’t need to publish this. And please don’t. But sell man. Don’t ask me the reason. I say it to u because I like what u do. Just sell NOW

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