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Analysis

Tuesday Inferno market update

It’s set to be a big week, one way or another – and possibly both.

After a move to the downside on Friday, bitcoin has put in a new yearly low just above $3,200. Since then, the price bounced by 10% but failed to make further gains. Instead, it stalled around the $3,600 mark and is now heading back lower. Last week we noted that BTC was in a falling wedge pattern, and it’s now back inside this channel – having dropped out of it and then bounced back but proved unable to escape to the upside.

It is no surprise that $3,600 proved impossible to crack, or that the bounce from $3,200 occurred in the first place. $3,600 was the previous yearly low, and was then established as support; when the price dropped below that level, it became new resistance.

In terms of the sharp moves upwards we’ve seen, these are also to be expected. They are relatively significant price movements, but on low volume, and they fail when they hit resistance. These are absolutely characteristic of a strong bear trend. Shorts pile up and whales love to squeeze them; traders with stop losses set too low find themselves liquidated, the price shoots upwards, and then stalls. Even with such strong bearish sentiment, you will always get reaction rallies, temporary relief, and short squeezes. They are not supported by volume. When a move is decisive, convincing and permanent (or long term), it will be backed up by a massive volume candle: that’s what reversal looks like. These little rallies aren’t even close.

Until such time as that happens, do not be fooled. These short squeezes just set the market up for lower lows, and that’s what we’re expecting to occur in the few days – if not sooner. We’re trending downwards in that channel, and sooner or later it’s going to retest $3,200. If – and we believe when – that breaks, then we’re very likely to see yet another major move to the downside.

We’ve written a few times now about capitulation and where the price may bottom out in this market cycle, but this can only ever be guesswork. Do not believe anyone who says they know for sure. It could be higher or lower than the ‘experts’ state. Price may briefly fall dismayingly low, only to recover just as quickly and leave many traders badly burned. We also cannot know exactly when this will happen. It looks like a large downside move is being set up right now, though this is only based on probabilities: there could be a large move upwards, squeezing all those shorts and destroying a bunch of traders before we head back down. Markets are uncertain and bitcoin is very risky – especially now.

What we do know is that:

  1. The trend is bearish, and recent developments have been even more bearish.
  2. Bitcoin market cycles have historically ended with a bang, not a whimper – both at the top and at the bottom. That ‘capitulation’ move has high probability, just as the parabolic top was likely.
  3. Markets always keep traders guessing in the short term, and none more so than bitcoin.

With that in mind, we’re setting buys at $2,500 down to $2,000, with a skunk order a little lower just in case we can catch a flash-crash or a wick. When the next major move is completed, we’ll be able to evaluate the situation again and update our strategy – and figure out whether the bear market is over or has another stage to go.

TL;DR Do not be fooled by the short squeezes. Do not sleep, or at least try to sleep within four-hourly candles. Do not panic. Tomorrow’s bitcoin millionaires will be made from today’s market crash.

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Friday Inferno Market Report

TL;DR The bear takes a brief pause, then continues his rampage.

Last week we saw a doji on the weekly candle, typically a sign of indecision that could signal either reversal or simply a pause before the trend continues downwards. This week, we’ve seen much reduced volumes, and some consolidation below the $4k mark. Overnight, that changed.

All week we had been sat in a falling wedge pattern that started almost 10 days ago. A falling wedge would typically be bullish, but the mood music isn’t good right now so this was one of the exceptions. We needed to break and close above the top line of descending resistance for a move up to be likely, around $4,000. But instead – as expected – we saw a break down from the channel to a new yearly low. Currently the low stands at $3,300 dead, but we expect that to change soon.

There should be decent support at $3,000. Back – waaaay back – when bitcoin was starting its run-up, there was a local top just under $3k in June 2017. Then, as bitcoin began its advance to the moon, there was a temporary pull-back in September – again to $3k. This point has never since been tested, and it seems implausible to suggest it wouldn’t be tested in this cycle. Whether it marks the end of the cycle and the start of the new one or a period of consolidation is another matter, but the odds of hitting $3k seem very high. It could be somewhat lower; reversion to mean is normal after a bubble pops and that could be somewhere between $1,500 and $2,500. But that could be some way down the line and the picture might well change before then.

Just so you’re aware: last time we saw capitulation, in January 2015, it was a 40% move to the downside over 2 days, before rapidly reverting and stabilising at prices 30% above that. For comparison – and it should be said this is a meaningless comparison without knowing where the capitulation move would start – if it happened at $3,500 then we’d see the price touch $2,100 before recovering to $2,700.

Bucking the trend, WAVES has had an awesome run-up, doubling in price in less than a week to top $2.10 on the back of its mobile app release. Now it’s correcting and will likely itself revert back to nearer the mean, possibly not far off $1. Right now it has corrected more than 50% of that run-up and sits a little above $1.40, or 0.00042 satoshis.

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Inferno Tuesday market report

November is over, and it’s been the worst November for bitcoin for many years. Traditionally a bullish month for crypto, this year the trend was too strong to fight. Bitcoin opened November at $6,304 (Bitstamp), and closed it at $3,971 – a 37% fall. Ouch.

Worse still, it doesn’t look like this month saw capitulation. Bitcoin bounced from a low of just under $3,500 – on historic resistance, right as expected – and the last weekly candle was a doji, but it simply lacked the conviction that a reversal needs. BTC failed to push through resistance at $4,300–$4,600, which is what would be expected in a traditional V-shaped recovery. Volumes have improved but are not especially high, and the overall trend has not been invalidated.

Further moves down should not come as a surprise under such circumstances. $3,200 is the immediate target, then $3,000 – and then a long, straight drop to $2,500 if that doesn’t hold. $3k is a significant level, representing an 85% drop from the peak: much the same amount as occurred in the last bear market, through 2014.

Yesterday, we saw resistance in the $3,800 zone tested but – amazingly – hold, with a bounce back above $3,900. It won’t be enough to dissipate bearish momentum, though, unless BTC climbs back above $4k and then that strong resistance zone at $4,300–$4,600. Confidence may be shaken by the news of a huge bitcoin wallet being emptied, sparking fears of a $250 million dump incoming. These stories have to be taken with a pinch of salt and we haven’t had time to look into this one yet; on previous occasions it turns out to have been exchanges moving funds from cold storage, or other benign explanations. Still, it’s not a happy narrative for traders who were already getting itchy fingers.

In all, it’s not a lot of fun for hodlers, but there’s some kind of consensus building that we’re nearing the bottom. We can’t tell when it will happen, but when it does it will be brutal. The best we can say is that it should be over fast and then it’s time to move forward to brighter things.

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Friday Inferno market update

TL;DR some unexpected action in the markets this week.

Last week closed heavily in the red, with bitcoin plumbing lows beneath $3,500 and looking decidedly as if it was planning on heading lower still. Indicators (and analysts) were predominantly bearish.

Incredibly, though, it didn’t happen. Despite falling volumes and momentum apparently being very much to the downside, BTC put in a double bottom, staged a rally and pushed back above $4,000, taking many traders by surprise. This was not classic capitulation and is, frankly, a curious development.

Bitcoin will encounter significant resistance in the $4,300–$4,600 range, which is where it temporarily topped out on Thursday after pushing above $4,400. This level saw a large amount of activity on the way down ten days ago, and bitcoin paused here in its slide, so this will take some bull pressure to move past. If we do, there’s more around $5,200 and, of course, unprecedented resistance at the $5,700–$6,000 range.

For now, there’s been some respite. Right now, on the weekly, we are seeing a green candle. But the big picture is far from clear, and without that expected final high-volume capitulation the ‘bottom’ lacks conviction. Thus we’d expect to revisit those levels again at some point in the short- to medium-term; the market likes to test these things to make sure. The reversal was lacklustre, so we’re still looking for sustained volume and a decisive move on the back of that before we can call it one way or the other.

As things stand, we’re consolidating in the $4,000-4,300 range, which is positive; there may even be a tentative bull flag forming, in which case we’d look for a push through $4,600 resistance and rapidly above $5k. Alternatively, of course, we’ll break down – at which point lower lows become far more likely.

In short, it’s a very interesting time but we’re not going to shout ‘Moon!’ prematurely. If volume and price both continue to increase, we’ll start to feel more relaxed. It’s more bullish than it’s been for a while, but the bear may have more fight left in him. BTC loves to keep us guessing.

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Tuesday Inferno market update

TL;DR the Bear gathers momentum – but it’s surely time for a bounce.

This has been one of the roughest weeks for bulls in a very long time.

Sunday’s crash saw bitcoin bottom at $3,475 (Bitstamp). This was followed by a brief bounce, but this was little more than a reaction rally and short-squeeze – something almost inevitable when the market falls so far so fast. The support level that had formed at $4,200 shortly before has become resistance, and bitcoin failed to punch through this: the bounce was weak and BTC soon drifted back below $4,000.

As Sunday closed, RSI dropped to 31.45 on the weekly, indicating we are approaching oversold conditions. It takes a lot of bearish action to push RSI under 30 on such a long timeframe. In fact, the last time that happened was the capitulation crash of January 2015, when the RSI read 27.53. But don’t get your hopes up just yet, because it hit 30.34 at the end of September 2014, with a low of $275. Anyone who bought that dip would have congratulated themselves as the price quickly rose back above $450 – but then plunged to its ultimate low of $152. There’s good reason to think we’re not at the end of this bear market yet.

Nevertheless, these things don’t happen in a single clean swoop – as the 2015 example above illustrates. The market can remain irrational longer than you can remain solvent, as the saying goes, but it keeps people guessing. When conditions are this oversold, a reaction rally is on the cards. When it will happen and where it will end we can’t say, though we’ve previously noted that there will be killer resistance at $5,700–$6,000, since this has been incredibly strong support in the past. It’s highly unlikely we’ll break through that on the first attempt and the rejection of those levels might see one last leg for the bear market.

On Monday BTC dropped back towards Sunday’s low but did not fall beneath it. At the time of writing – and things change fast – BTC has managed to remain above last week’s low. It does seem likely that BTC will drop lower at some point; the 200 weekly moving average stands at around $3,150, which also lines up with historic support. However, there’s no telling whether that will happen this week, or further down the line after a bounce.

We’ve been hearing all kinds of wild predictions about how low BTC might go. BitMEX CEO Arthur Hayes, who earlier this year predicted $5,000 would happen, has gone on record saying $3,000 is quite possible. Others have stated $2,000 is likely, or even that the old all-time high of $1,200 will be revisited. Fear is as strong as hope; back in 2014, people were predicting double and even single digits. If you’re trading, manage your risk carefully; you can find where to learn how here.

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Friday Inferno market report

TL;DR Embrace the bear.

Crypto’s slide into the abyss continues, as Tuesday’s trading marked a low of $4,049 (Bitstamp). Since then we saw a relief rally back beyond $4,600 – all but inevitable after such a heavy plunge – and now, at the time of writing, BTC sits at $4,320. Last night it plumbed similar depths, touching $4,061.

Inferno will never give you financial advice, but we can point to plenty of evidence that we’re going lower. Just as bitcoin never finishes a bull market quietly, instead preferring an epic blow-out parabolic top, it doesn’t tend to bottom quietly either. At some point, we’re looking for capitulation: a sudden, deep spike down and back up again on huge volume. That hasn’t happened yet. It may not happen for weeks or months, but happen we believe it must.

Between now and that event – which will set up smart traders and investors for the next market cycle and possibly for life – there will be many ups and downs. In the short term, we expect a drop below $4,000 with targets in the $3,500–$3,600 range. Should that occur, it’s quite likely that we’ll see a considerable rally back up towards resistance at $5,000–$6,000, before a final leg down and end to the bear market. We’ll explore why we think that in later posts because there’s lots to it.

For now, we’re looking at support around the mid-$3,000 level. That lines up with a pause in activity from the bullrun over a year ago now and so is all we’ve got for now. As we’ve noted before, this market is wide open because the parabolic nature of the 2017 rally means that little was established in the way of support and resistance. But suffice to say it’s Black Friday, and we’re looking for a big discount on crypto today or over the weekend.

Things change on a daily basis with bitcoin, so as new information comes in we’ll be re-evaluating our position. But if we had to nail our colours to the mast, we’d say it might play out like this:

Sub–$4k (perhaps around $3,500) –> $5,000–$5,500 –> Final capitulation.

That lowest level could be $3k, it could be lower. We just won’t know until we get there.

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Tuesday Inferno market update

Well, it’s happening: the last week has seen some brutal market action for bitcoin.

Bitcoin broke its long-term support at the $5,700-6,000 zone on Wednesday, plunging abruptly to $5,200. After a brief bounce and period of consolidation around $5,500 over the weekend, it again dropped on Monday to challenge the psychological support at $5k. After some hesitation, this proved no great barrier and the price headed into the $4,500 range (at the time of writing).

The parabolic nature of the run-up last year means there’s little in the way of technical resistance, so it’s impossible to call where the bottom might be. As yet, we have certainly not seen the momentum and volumes that indicate capitulation. Aside from $5,000, we see potential resistance at the $4,500 and $3,500 levels. Will BTC go lower? It’s impossible to tell, of course, but nothing should be discounted. Still, the $3,500 zone should provide some pause if it’s hit.

If BTC has suffered, the alts have fared worse – especially ETH, which has been flippened into second place by XRP. Ethereum has been impacted by the SEC’s recent ruling against two 2017 ICO issuers, entailing fines and the requirement they return funds to investors. This enforcement likely played into the crash across the crypto markets, with traders seeking to frontrun further action against ICO issuers. Meanwhile the BCash hashwars rage on; Wright’s SV chain and Wu/Ver’s ABC are vying for first place, alternating which is ahead. Resources are being expended on this, and it will be a case of who can afford to keep it up the longest. Right now SV looks to be losing, but it’s not over until it’s over.

Whenever the recovery starts, BTC will have tough headwinds to contend with at $6k. This has been tested many times as support, with huge amounts of money. Support traditionally turns into resistance on the way back up, and breaking it will be no small matter: it is likely the most powerful resistance level ever established in the bitcoin market.

It’s not all bad news, thankfully. The Swiss HODL ETP (exchange-traded product) has been approved, meaning that investors will gain access to a basket of five crypto assets on the Swiss stock exchange. And Bakkt is on course for launch early in December, offering an on-ramp for institutional money. The timing of this will be interesting. 12 December is just over three weeks away and that is plenty of time for the market to nosedive to ‘despair’ levels and beyond, offering corporate clients some bargain Christmas prices.

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Inferno Friday market report

Turbulent times in the market, but a temporary reversal looks underway.

Wednesday saw bitcoin finally and conclusively breach its long-term support at $6k and, ultimately, $5,700 – the last line of defence. The resulting plunge was sudden and severe as traders raced each other to sell first. There’s little in the way of support for a long way down, so no one wanted to wait around to find the bottom. Eventually BTC bounced at $5,200 (Bitstamp).

The move above $6,500 was a fakeout (something that often happens with bitcoin), after which we returned to the established range and then broke down. It all happened very fast and many of those intending to short at $5,700 will have missed their chance.

The catalyst for all this seems to be the fork in Bitcoin Cash, as traders move large sums of money into and out of the currency via bitcoin and take their positions. BCH suffered a brutal selloff and the fork – which has now taken place – was surrounded by more FUD than is usual even for crypto. Craig Wright has been posting all kinds of crazy stuff to Twitter, essentially saying he will actively work towards the demise of BCH and BTC, if necessary: https://twitter.com/ProfFaustus. Read the memes and insults, and ask yourself: is this really the person who wrote the Bitcoin white paper and launched the whole crypto industry?

Wright has promised a hash war intended to destroy BCHABC – the rival BCash fork to his BCHSV – and stated that miners who support ABC with hashrate will be contributing to the crash of BTC, since he will be forced to sell BTC to pay for additional hash. Despite his claims and a short-lived rally in BCHSV futures, BCHSV is today trading down 40-50%, and a third of the price of BCHABC. So far, his posturing has come to nothing. Having boasted that SV was ahead, Wright now finds ABC 45 blocks ahead and moving away fast.

For now, BTC is monstrously oversold, down at 18 on the daily RSI. We’re due a short-term bounce at the very least, and yesterday’s huge doji candle signals reversal – whether that’s temporary or not can only be known in hindsight. We expect to test $5,700 and $6k again quickly, with that former support level now acting as resistance. Assuming we’re not in for lower lows – which is by no means certain – it would likely take a couple of goes to punch through $6k again. With the BCash fork out of the way, the uncertainty and external factors are at least receding.

Downwards, there’s not much in the way of historic support, since the run-up last year was so sudden. There’s the psychological $5k level, and good support at $3,500. Hopefully we won’t test that low, but there are no guarantees.

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Tuesday Inferno market report

TL;DR volatility returns, with gradually increasing volume?

After last week’s promising breakout, bitcoin took a dive and is now back within its range. With the failure to make higher highs, we’re back to the previous rules: resistance at $6,400 and $6,200, with $6,000 being the established demand zone. Should the price drop to ~$5,700, we’d say it’s time to short – as ever, though, do your own research.

At the time of writing, BTC stands at $6,275. Volume is up a little; while it’s still pretty lacklustre, the direction of travel is right at least. Coinmarketcap is showing aggregate volumes into the $4 billion range (check the Historical Data tab for Bitcoin). While we’d like to see figures much higher, a large proportion of the last three months have seen lower volumes than that.

Meanwhile, BCash is retracing hard after its pre-fork pump, which looks like nothing more than your traditional crypto P&D. It seems that this event may have brought some interest to the overall crypto space, as traders purchased BTC to buy BCH – which are now being sold again. Craig Wright has stated his aim to kill BCH entirely. He claims he has over 50% of network hashrate at his disposal, meaning he could destroy BCHABC (Ver and Wu’s chain) and ensure his own BCHSV survives. Needless to say, the futures market has been volatile, and given that Wu has a lot of Bitmain hashrate to draw on, it could all get very ugly. Wright has threatened legal action of Wu moves Antpool hashrate to counter-attack.

Just another day in crypto. Most likely we’ll need to wait until after the fork happens and all of that mess plays out before the situation for BTC itself becomes clearer. You can read our rundown of the BCH fork debacle here.

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Friday Inferno market report

TL;DR Positive for now, but it’s all about $6,800

 

After a long period of uncharacteristic stability, bitcoin is finally picking up. There are several reasons for encouragement, but a trend-change – a renewed bull market – is not certain yet.

 

On Wednesday bitcoin closed above the 50 daily MA for the first time in weeks. That area ($6,450) broadly lines up with a key support/resistance level, so remaining and consolidating above that will be important. For now we’ve dipped below that to $6,400, coming off the 50 and 200 MAs (which have just crossed bullish) on the 4h chart.

 

We have broken through the descending resistance line that has been in play since February. Bitcoin has tested this multiple times, as it has tested the $6,000 zone.

 

Volume is coming back in. It’s nothing like it was at the height of the rally or earlier this year, of course – but it’s picking up.

 

Bitcoin dominance is down. This is something that die-hard maximalists will view as a bad sign. For us, it’s a signal of strength for the overall crypto market. In a bear market, traders seek safe haven in BTC, assuming they don’t exit to USD altogether. This is why alts have typically fallen ~90% while bitcoin is down ~65%. When confidence returns, traders buy alts – pushing those thinner markets higher and reducing dominance, but indicating in the process that crypto is overall attractive.

 

For all that, bitcoin is still in a range and we know that $6,800 represents critical resistance. BTC has traded around that area enough in the past that it will necessarily be a key level in deciding trend. It may take a couple of goes to break that, if indeed the market decides that’s where it wants to go.

 

Additionally, bitcoin shorts have dropped to a three-month low against longs. This is not conclusive evidence of anything, but we take it into consideration. Longs have not picked up appreciably in cash terms. Remember that the herd is generally wrong. When shorts are high we often see a move to the upside, clearing them out. We’ll be watching this to nuance any technical analysis. Finally – and this will feel like Groundhog Day to anyone who’s been around since 2014 – China has just unbanned bitcoin. Again.

 

To summarise, passing $6,800 will be interpreted as a sign of strength, and many traders will be waiting for this point or $7,000 before buying.

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