Topic: Arepo's Weekly Newsletter Discussion and Analysis - page 2. (Read 8353 times)

the violent snapback we witnessed in the past 24 hours appeared to me as a chain-reaction of closing shorts. while its impressive volume and long wicked candle formation looks like it marks the short-term bottom, the mid-term downtrend still looms.

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short-term moving resistance



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we are just now breaking above a robust short-term moving resistance i discovered with 5 points of contact and 1 major violation. this is definitely a bull signal and we could see a recovery up to the mid-term trendline in Figure 1, issue 7 April (most likely). however, low weekend volume may impede this and we could see consolidation in the $450-$380 range (more likely). a break below the $380 long-term support would suggest a double bottom, (less likely), or an abrupt continuation of the downtrend (least likely).

this particular formation (v-bottom) is relatively unique and has occurred far fewer times than the more robust patterns i have a better statistical understanding of. honestly, some of the ridiculous volatility we saw in the last couple of days took me by surprise, but then again, this is only the second real bear market that bitcoin has ever seen. i think many market participants are having trouble trading this environment, as this kind of snapback occurs in relatively inefficient markets. the ticker price suddenly moves below an important support, but the bid depth is too thin to prevent significant slippage, even though the buying pressure below this price point is significant enough such that if the buyers and sellers were more coordinated, the price volatility would be far less.

anyway, i hope you all caught the bearish divergence earlier in the week and were at least prepared for the large dip. with great volatility comes great profitability, so i hope you were on the right side of those powerful waves. i took only a slight loss, but did not make any gains as the constellation of patterns i was following in the indicators revealed themselves as lagging, instead of leading patterns. more on this in the next report.

--arepo

Good work, as always, arepo. It's interesting that you put in more technical terms something that I thought about in more intuitive ones: I think the most remarkable observation right now is how "normal" 400 suddenly looks.

A month, or two, ago, 400 had everyone salivating. Right now, we're creeping closer to it on pretty low volume. Will I buy at 400? Maybe, a bit. But nowhere near the enthusiasm I had for it myself back then.

Right now, 400 is protected somewhat by (in comparison to the total order book and average volume) some impressive buy orders around 400. But time works against the barrier, right now: we are in the process of feeling 400 is "normal", and if buying pressure doesn't majorly pick up until then, we will probably keep on testing it, and might eventually break it.

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at $410 we are resting delicately atop the mid-term support.

here we see a playout of scenario c, making new lows. this comes as a bit of a surprise, but the figures in the newsletter began to show bearish divergence earlier today, so we could have expected scenario b, at least.

-the daily UO data (figure 2) bounced off of the upper support

-while the 50-line showed a little support in the daily Stochastic RSI (figure 4), today's price action broke below it

http://bitcoincharts.com/charts/bitstampUSD#rg150zigDailyztgSzm1g10zm2g25zxzi3gStochRSIzi4gUOzvzl

-the 50-line in the 6-hour RSI (figure 5) completely rejected the bullish suggestion

-the moving support in the 6-hour MFI (figure 5) was broken as well

http://bitcoincharts.com/charts/bitstampUSD#rg30zig6-hourztgSzm1g10zm2g25zxzi1gRSIzi2gMFIzvzl

-the bullish divergence in the 6-hour Rate of Change Oscillator (figure 6) reversed

-and the 6-hour ADX shows a coupled momentum and negative directional line.

http://bitcoincharts.com/charts/bitstampUSD#rg30zig6-hourztgSzm1g10zm2g25zxzi3gROCzi4gADXzvzl

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For the short term, this support should be a particularly strong one, so i do not think that a sudden crash from here is necessarily likely. If we see a snap-back that produces a long wick on the 12-hour scale, it could suggest a larger consolidation pattern before a market decision. If we remain at these levels for most of that period, this would be extremely bearish. Each other time we tested this bottom-most resistance, there was a quick snap-back in the price on the 12-hour scale that was followed by a large bulltrap, but we are in the midst of an unprecedented downtrend* (*reference issue 31 March). If price breaks below this price point, then we will have broken out of the larger triangle and could see a mid-term capitulation to the targets in issue 31 March, page 25, second paragraph.

edit: I have just re-issued report 31 March to those of you who have not already received it.

--arepo

i'm sure many of you have heard of the Heartbleed bug by now. i hope no one has suffered any losses, as there was a lot of black hat activity in the early hours after the announcement.

in reaction to the news, many bitcoin-related services closed or otherwise restricted user activity and exchange volume has visibly suffered. this may have a limited effect on the projections in this week's issue, and we may see consolidation in the $465-$440 range for most of this week, scenario b. it is unclear whether or not the sluggish price action today is a direct result of the community's reaction to the bug, or is a natural result of a market in further consolidation. in the case of the latter, i would now rate scenario b as equally likely as scenario a.

further updates to come.

--arepo

this week's issue was just sent out to the following users:

oda.krell
docile
John999
kramerc
iron77
jlin
Aquatic
Blue
Ultros
Roger_Murdock
rushthatspeaks
castle
damdam
windjc
CoolStoryBro
whiz1003

enjoy! and happy trading.

--arepo

edit: friendly reminder to all subscribers, new and old, if you have not received any issues in the series and would like to, let me know via PM or email. i want to re-release some older issues for the sake of the accountability as well as for the longer-term projections that i have included in them, specifically the mid-term projections and price targets i included in the last issue, 31 March. subscribers are entitled to a backlog of as many issues as they have paid for.

I'm with oda.krell. Smart post. It's nice to see a dose of realism here too.

Just sent payment for a subscription.  Can't get PM to send (keeps giving me an error), so I sent you an email instead, hopefully that's OK.  Thanks, very much a lurker but enjoy your work.

I wanted to know if you already sent this week's newsletter ?

We're already monday afternoon (in my part of the world), I have some money waiting to be spent on bitstamp, but I didn't received your newsletter. I'd like to read your opinion before buying.

Thank you.

I am altogether pleased with the accuracy of this week's report. despite a large bulltrap early in the week, the price action has followed the outline on page 25 nearly to the letter. we witnessed the projected move down to the major support level between $400-$420, reversing in the short-term around $416. then, we slowly drifted back up until reversing again at the $465 resistance, also detailed on page 25.

as always, i'd like to bump this thread with an invitation to any and all new subscribers. the publication still has 12 more issues to go!

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1-day scale


https://i.imgur.com/9NFCoLN.png

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here, we can see the moving resistance formed by the last two local highs on the 1-day scale coincides with the "last gasp" bulltrap from late January. this resistance also, incidentally, should coincide with the tip of what looks like a forming wedge. this price point will be extremely important, determing whether we reverse at these price levels and move up to the "bullish correction" targets, also from page 25, or retest the last low and possibly continue the downtrend.

--arepo

Smart post. Wholeheartedly agree with the gist of it. But about the quoted part...

Names! We want names! :D

I'm not so sure anymore. I think we might see the 200s again in the next couple of months. China is going to be severely handicapped so money will not flow into the markets much from there for a long time. Companies like Neo and Bee made critical mistakes (undercapitalization) and failed at bringing game changing services to places like Cyprus. The most successful bitcoin companies are ones that basically save merchants transaction fee charges by using the bitcoin platform, but do not inject money into the bitcoin exchanges or encourage businesses to hold bitcoins.

I don't think Bitcoin is dead or would even be dead if we went to double digits. I do however think that bitcoin has some SERIOUS growing up to do and we are in a process of killing off the core group of unsavvy unprofessional people who championed us this far while replacing them with more traditional business leaders. And until that process matures some more, we aren't going to see capital inflow from large hands across the world.

Bitcoin has got to take some more heavy left handed crosses to the chin before it can officially maintain high dollar heights. And because these more traditional business leaders move more carefully and diligently, it might be 2015 before we see some real recoevery. 2014 might be a dark year (ie 2011) for bitcoin price indexes.

The spring I am referencing is much longer term than the charts you are looking at here.

Remember the last coil in July 2013? I believe it is happening again. Just a matter of time.

Let the weak hands sell then we can move up.

this is a great point. off-exchange capital inflow would definitely be absent from indicators like the Chaikin Money Flow which was the focus of that argument in the newsletter.

putting aside whether or not it is true that institutional buyers are making historically high amounts of purchases, how would be the best way to verify this?

while the CMF may not respond clearly to such "hidden" buying pressure, other data certainly would. your suggestion of looking at historical ask sums i think is the most obvious and straightforward way. these large buys would not show up as volume on the exchanges, but they would certainly affect the available supply.

also, while the CMF may not directly account for this buying pressure, many of the indicators i rely on are well-calibrated to a whole range of market environments. for instance, the CMF, like many other indicators, is a range-volume transform. The thin ask side that results from this choked supply would yield larger price gains with equivalent volume during bull markets, which would multiply the height of positive divergences and may help maintain the faithfulness of the signals in the indicator data.

--arepo

Arepo,

One thing I am not sure how TA can address is off-exchange transactions.

What I mean by this is that you provided a lot of great info in your newsletter about historical money flow.

However, if we were to make the assumption that larger buyers and institutional buyers are making a historically high amount of bitcoin purchases off exchange, how would we account for this in money flow?

It seems theoretically that lack of money flow could be offset by lack of bitcoin available on exchanges.

I guess we would have to measure historical ask sums to try to get a read on this?

Glad to see you made use of the ADX/DMI indicator in your latest newsletter. It's one of my favorites, because it is one of the few mid/long-term indicators that yield a very clear, almost binary signal. Unfortunately "clear" does not necessarily mean "reliable" however, and how reliable mid/long term signals can be is another matter, one which I shall rant on about in my...


Unexpected methodological interlude (you tend to have those yourself, arepo, so you can't complain :D)

The problem with TA indicators when applied to Bitcoin price is always the relative sparsity of data, because we can only look at 2-3 years of data. This problem becomes worse when looking at mid/long term signals, like the weekly ADX signal you presented (because it means we see a lower total number of patterns). If TA is supposed to be different from voodoo (a regular accusation on the wall thread :D), it needs to have an empirical foundation -- that foundation can reasonably only be in the form of frequencies of observation, and resulting estimations of conditional probabilities: out of m patterns observed in total, we have seen pattern X n times, and it is followed by price decline i times, etc, therefore we assume that, given the observation of pattern X, the likelihood of price decline is... etc.

In principle, this is sound methodology. The problem with slow moving indicators is that we have only seen the patterns we speak about 3, 4, maybe 5 times. In the absence of other methods, it is still our best bet to see how those patterns resolved those 3,4,5 times, and trade accordingly, but if we are honest with ourselves, we need to keep in mind that with such low numbers, our predictions don't have much statistical power. This can be slightly ameliorated by seeing how the same indicator performs and behaves in other assets (stocks, currencies), but the problem isn't really solved by that: because Bitcoin is so new, we don't really know for sure which other class of assets is the closest analogue, so conclusions drawn from another asset suffer from the same problem of uncertainty we faced before.

/methodological interlude


Let me add one or two remarks to the ADX analysis you made in the newsletter: you chose a weekly time resolution, which illustrates quite nicely your point on page 13 about the parallel increase of ADX and -DI. In my opinion this point becomes even clearer in a different time resolution however... in my (limited) experience, weekly resolution often tends to paint with too broad a stroke, while daily is often too "jittery", so I noticed that I often get the best results with a compromise: 2d or 3d resolutions:



And here it becomes crystal clear that we currently see something that was absent during the "bubble" of 2013 and the "mini bubble" of 2012: a second downtrend period (-di above +di) following the initial correction after the peak. And, as you pointed out already, this downtrend and rising -di is also coinciding with a rising ADX. So I can't really say I understand the optimism of those who seem to think it will be "business as usual", by which they mean "same deal as 2012 and 2013"... there is an important difference visible on the charts (and in fact, many others as well), and right now, I consider a continued bear market more likely than a trend reversal.

we just witnessed an impressive upwards breakout in the last 2 hours. good catch on the small bullish divergences in the indicators, i was keeping an eye on these as well. however, the 1-hour candle just closed in a high-volume "doji" on Huobi, and a high-volume "shooting star" on Bitstamp; both of these are signs of reversal. the model you quoted can still come to pass if a subsequent correction downwards takes us under the $455 starting point of this push. the upwards breakout was a little larger than expected, but i think it was a significant short squeeze which added some volume to a movement up through a thin orderbook.

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4-hour scale


https://i.imgur.com/0hbbNkP.png

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on the 4-hour scale, we can see two short-term resistances here. one was the upper bound for the consolidation pattern, triggering the upwards movement once the price broke above. the other stalled the rally. the model is still intact, as long as we see a full retrace of this movement.

--arepo

thanks for your support i just sent you a PM.

--arepo

Just sent you payment for 4 subscriptions, including this last one preferably. Please confirm.

This week's issue was just sent out to the following users:

oda.krell
docile
John999
kramerc
iron77
kwest
jlin
CoinBurner
Aquatic
Blue
Ultros
Roger_Murdock
rushthatspeaks
castle
damdam

enjoy, and happy trading!

--arepo

care to be more explicit? it does seem like we're near a market bottom, unless the price support in my previous post fails (which seems awfully unlikely given the bid support at Bitstamp). but all i've pointed out is that we haven't yet seen quite enough volume for the downtrend from $600 to terminate, based on the two previous capitulation events in the past 5 months.

in the short-term, i see an ascending triangle consolidation pattern forming that will likely terminate with a bulltrap that fails to break out above the moving resistance defining this downtrend:

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6-hour scale


https://i.imgur.com/8jn5sjB.png

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granted, this will be an important test, and a decision point to give the market a chance to reverse at these price levels. however, i anticipate that ask depth will steadily fill in during this consolidation and the market will be ready for another move down by the time we reach this resistance.

--arepo