What Have the Markets Been Up To Lately?
Hi traders! The cryptocurrency markets have been very flat lately. Since my last post the price has declined from the lower $8000s to the mid $7000s, with a low if around $7,100. Most of the market has followed with slight declines. We saw a rally up to around $7,750 yesterday as Bitcoin exited the descending channel shown below on the daily chart (all price charts are from cryptowat.ch).
This was the best profit opportunity of the last two weeks for bulls. Shorting would have been more profitable but the sell off was not as strong as previous sell offs. The market volatility has continued to decline, and I imagine this should continue.
Volatility Has Been Low
After touching $7,750 yesterday the market has sold off to $7,500. Switching to the six hour chart we see that the price is right on the support line that has been supporting the rally over the last few days. Hopefully we bounce off this line and make a run for $8,000. Otherwise the price of bitcoin and most other cryptocurrencies will slowly sell off or remain flat for a while.
This decreased volatility is forcing people to take a long term position – either by buying some coins and ignoring the price action or cashing out and hoping for a better entry point. The volume has been the lowest we have seen in quite a while which means short term traders are not very active. Hopefully this means that most of the people who just want to get rich quick have exited the market or have decided this is a long term investment.
Now let’s take a step back and look at a longer-term chart (weekly candlesticks). We are still above the support line that started with the $6,000 low a few months back through the $6,500 low two months ago. This trend line is around $7,000 now, and a breakdown below that level could cause traders to panic. I also drew a resistance line that will probably become more important in the next month. These lines form a triangle that should complete in the next month or two. Until this triangle completes I expect volatility to continue to decline.
Finally, let’s take a quick look at the depth chart for bitcoin on GDAX. The buy side looks a little stronger than the sell side. I have also noticed that the sell side does not grow significantly when the price crashes. To see this, I have been watching the total number of Bitcoins for sale at or below $10,000. This number as been somewhere in the range of 3,000 to 3,500 for at least a few weeks.
If this number were to jump to 4000+ I would become worried about another week-long sell off. Until then I am optimistic the market will consolidate and eventually move up when the triangle on the weekly chart completes. Personally, I have mostly been on the sidelines for the last month or so waiting for a bullish signal.