Don't be Fooled by the Calm...

Monday 19 May 2014

G'day! Okay, so price action has been on life support since our last update. But while this sucks for active/day traders it does add credence to our view that the market is trying to move from downtrend to a range that may be the prelude to a major reversal.  To show you what we mean let's look at a chart...

BTC Market Analysis 19 May 1

As you can see, the market has succeeded in trading away from the descending resistance line that, until recently, had fastidiously reversed each and every rally.  Also you will note plenty of technical support zones below the market, against which more and more new buy orders will be placed as time moves on, building a springboard against which bears are likely  take their shorts in, for fear of a reversal.  This isn't to say that the market couldn't pierce this wall, only that it will take more and more powerful and sustained selling power to do so as time marches on.

From an investment perspective, we're only likely to start twitching if the market plunges to below $350 (BitStamp).

Notwithstanding, the sudden drop off in volatility and volume is something we've been pondering and this is what we have discovered...

BitScan BTC Market Analysis 19 May 2

What you are looking at here is the same market, plotted on a Logarithmic scale, with each candle equal to one week's price action. So what we are viewing is a far larger data sample, that displays price action in a relative rather than absolute sense.

On it you will see that we have plotted 2 rising support lines.  The lower of the 2 joins all the market lows up to the very beginning of 2013, the higher of the 2 joins all the market lows since.  

What you wil notice at the right hand extreme of this chart is that the market is currently trading sideways into co-incidence with the steeper of these rising support lines and this is a reasonably big deal, because it is telling us that other traders are getting ready to trade... so something is likely to happen.

On the one hand the manner in which the market has traded into this support zone looks bullish.  Bears seem to have run out of steam, having tried and failed to break through to the downside, last month.  If this is the case new money entering the market long could finally be pushing on an open door.

Having said this, we'll not know for sure until we see a nice bullish confirmatory candle, closing at the top of it range.  The reason I say this is that any serious sellers will be waiting for upside liquidity against which to feed in their shorts, so we could see the return of some serious volatility before the outcome of this next battle is known - and if this does turn out to be a bull-trap - the bad news is that a confirmed break of the upper support line is likely to lead to a re-test of the lower one.  And while not fatal to bitcoin, this sure would be painful to witness.

So, don't be fooled by the market's current lethergy people.  There is always calm before the storm, so don your crash helmets, place your bets and be prepared to hold on tight...

 

 


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