First of Many Letters

Analyzing Bitcoin Market Structure

Dear fellow readers,

welcome to this first market commentary newsletter. It is my great pleasure to be reporting for you from the depths of the crypto markets. While I am making every effort to increase the quality and objectivity of reporting with every further letter to be published, feedback of any kind is highly appreciated - please send it to dagohbah@gmx.net so I can review and implement improvements in future posts. Thank you.

Market Commentary

To get a proper headstart and place an anchor of reference for the future, today we will mainly focus on BTC/USD to understand the macro perspective, determine in which phase we are and what we might expect in the future.

BTC Weekly

In order to assess in which phase of the trend we are in right now, we have to go back and analyze what happened in recent months.
In early 2019, about one year ago, we saw an impressive run-up lasting for several months, in which BTC hit valuations of about $14,000. During this run-up first signs of serious FOMO emerged, making many investors believe this might be the new bull run starting, made to take out All-Time-Highs.

What followed could be best described as a bull flag, a corrective channel down, in which late buyers get stopped out, while more patient buyers try to accumulate at lower rates, expecting a continuation of the uptrend to follow in the future.

Finally in January/February of this year BTC this upside breakout out of this bull flag occured, but failed to hold valuations above $10,000. Instead of building a larger rally on increasing volume, prices reversed sharply instead, leading to a drop of more than 60% in just a single month, invalidating the massive bull flag theory.

While we are still in a correction of a macro uptrend, the invalidation of the bull flag is something that caught most investors off-guard. As EMA 100 and 200 are still crossed upwards, indicating the uptrend is still intact, it can be argued that this is a prime buying opportunity below EMAs. But in order to assess the validity of this assumption, let us zoom in.

Zooming into 3D

The Three-Day Chart shows a variety of interesting signs to be noticed. The first thing is that the down move almost precisely stopped at support of an earlier breakout point around $4000ish. While in times of very high volatility moves usually overextend, this one got bought up strongly in support. We must for now assume that buyers are interested buying around this support between $4,250 - $3,600. Due to several candle closes being nearby in the range from $4,000-$4,100 I would argue that this is the key level to watch for should we come down to this level again.

Evident is that during last’s week trading, prices managed to bounce, but got rejected at local resistance around $6,900. After such a hefty 60% drop we have to assume that the medium-term trend direction is down, as momentum is not easily stopped and/or reversed. In case of doubt we must assume the trend will continue and that most reversal attempts will fail. Getting rejected at local resistance would indicate we might see lower prices in the coming days.

BTC Daily

As can be seen in the Daily Chart, EMA 20 acted as additional resistance at around $6,800. The retest of local resistance is clean and precise. EMAs 100 & 200 have already crossed downwards. Although there is some time left for bulls to take over control, time is ticking and the longer the EMAs are given room to unfold downwards, the more selling pressure will exist on top of current price.

BTC H4

EMAs crossed bearish at around $9,200 after prices failed to sustain above $10,000 and went down since. Being in a stable downtrend BTC attempted to retest EMA 100 on March 20 and got rejected, indicating the downtrend is still active. EMA beginning to lean downwards, trendline has been broken as well. To me this looks like a two-legged correction with local top at $6,946, now looking down again to retest previous lows and support. Failure to do so will likely lead to strong rally upwards instead.

Bull Scenario

Having retested major support in the $4,000~ region bulls might have a reason to drive up the price from here, if they are able to reverse the prevailing downside momentum. Anything between $6,200 and $7,000 is seen as resistance and needs to be overcome.

The $7,000 mark itself will act as a point of major resistance and crucial mark to be taken out by bulls to invalidate the two-legged correction and turn resistance into support. It should be noted that a strong breakout from these levels would catch most investors and trend followers off-guard. Taking into consideration the state of the world right now, this scenario is not too unlikely even if current trend seems to suggest otherwise.

Another weekly chart, with two additional lines of interest. The blue line is projected from earlier 2017 lows through the $3,200 low from December 2018 and might act as support in case there will be another leg down. Line is currently located at $4,850. Another line of interest is the one in violet, indicating that prices attempted to breakout below the downside of the channel. In general this can be considered oversold territory and might indicate premium buy opportunities. It should however be emphasized that all of these zones and lines have already been hit in the violent down move of March 12, and might not present a second chance to enter at such low valuations.

Bear Scenario

As long as bulls do not step up decisively, the momentum remains downwards for the time being. Assuming the downtrend is intact, another retest of previous lows and key support at around $4200 and potentially below would be logical. Ideally I would like to see the following support levels to get retested, and the reaction of market participants at these levels (Failure to test these levels at all would be seen as Bullish):

Key Levels

Support:

$4,850 - Blue Line (Ancient Trendline)
$4,300 - Violet Line (Oversold Channel Line)
$4,000 - $4,100 - Key Level Buy Interest
$3,600 - $4,200 - Breakout Point Support

Resistance:

$7,000 - Key Resistance Mark / Invalidation Point
$6,500 - $7,000 - Main Resistance Zone
$6,200 - $6,400 - Minor Resistance Zone

Conclusion

While the overall medium-term trend is bearish due to the large spike down on March 12 and losses exceeding 60% in just a single month, the market is now trading in oversold territory and might present a buy opportunity for the long run. Another leg down would likely be used by buyers to accumulate more at bargain prices before the final run-up begins. Failure to retest lower levels will be interpreted as bullish.


Special Chart

Presenting a special setup this week is Silver [XAGUSD], with a clean Cup & Handle forming on H4 after a prolonged selloff. Taking into consideration the lasting slowdown of the global economy through the virus, it would not surprise me to see Silver shooting up soon. Invalidation of this pattern below $12,25 would lead to continuation of downtrend instead.


Hope you enjoyed this first of hopefully many reports. Until next time!

May the Source be with you,

CY

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