Uffda. The Nasdaq tagged a -20% down move today – traditional analysts call that bear market territory. Oil is just crashing. Bitcoin though – it’s looking good!

 

Nasdaq drops below the major trend line, tags bear market territory – panic sell-off imminent?

 

A large number of stocks in US equity markets are experiencing new 52-week lows against a continued and major route of the markets. And it appears no market is very safe. US equity markets are selling off with the S&P, Nasdaq and Dow registering > 2% losses, with the Nasdaq registering a low of -223 points or -3.50% lower. It’s kind of a scary level for investors because, from the most recent swing high of 7701.6 on October 1st to the swing low of 6162 today (December 20th, 2018), we see a monstrous -20% drop. And this is coming right off of yesterday’s comments from the US Federal Reserve Chairman Jerome Powell confirming another rate hike and more hikes in the near future. But I’m going to go ahead and blame this on time cycles – specifically Gann’s time cycle. Gann’s cycles indicated that a drop was going to happen before pundits and news reporters started searching for any reason to cling to for a reason that we’ve seen a dive in the market.

One of the most important (I consider it THE most important) lessons that Gann taught was the cycles of the inner year. Any inner year cycle begins off of important and extreme swing highs or lows. If we look at the Nasdaq’s chart above, we can see that the blue vertical line starts right as prices begin to drop. But why did prices drop on that date? To me, it’s a very easy thing to understand why: the 180-day cycle. The 180-day Gann cycle is the second most powerful cycle after the 90-day cycle and is viewed the same as the 90-day cycle. Gann wrote that there is a high probability of support or resistance is usually found at the end of this cycle. Additionally, he wrote that 180 days up or down will start a countertrend movement or a move that terminates the current trend. And that is precisely what we have witnessed. But there was one other cycle that showed up: the Venus Retrograde Cycle. I wrote as much on a trading idea I posted on TradingView on September 14th, I also posted another short idea on October 2nd updating that trade by focusing on the imminent drop related to the Venus Retrograde cycle. These are natural and set patterns that man has no influence over. People disregard the positive expectancy of major moves in markets with these kinds of cycles do so at their own peril and their accounts peril. However, we near a 90-day move and we could see a rally and continuation of the bull market – which is the most likely scenario I see playing out. It is still too early to for the true panic and bear cycle to commence – we have a couple more years before that happens. But let’s get to cryptos.

 

Bitcoin could create new monthly highs

 

The monthly chart above shows the very bearish nature of the current cryptocurrency market. Bitcoin has been in a 13-month downtrend, with only 3 of those 13 closing higher than they opened. An even deeper and bearish pattern has occurred with Bitcoin closing below its monthly open for the past 4 months – if this happens in December it will be the 5th month in a row to close lower than the open. There may be a change to that pattern though. Prices could very easily rally higher and create new monthly highs and even close above the November close. The candlestick forming on the chart could be interpreted a number of ways, but it looks like a hammer pattern which is an inherently bullish candlestick pattern. Take note of the Composite Index and its levels: very clear bullish divergence.

 

I think the weekly chart shows more immediate and relevant price action. I want you all to keep this in mind: weekly candlesticks open on Mondays at 1800 CST and then close on the following Monday at 1759 CST. That means we still have 5 more days left on the current weekly candlestick. That’s a big deal because of several factors:

  1. Weekly volume is already above the prior week, is above the 20-week average volume and is 3/4ths of the weekly volume two weeks ago.
  2. The current weekly candlestick totally engulfs all last week’s trading range and has printed high above the high of two weeks ago.
  3. Bullish divergence between price and the Composite Index as well between the RSI and the Composite Index.

Volume continues to pour into the cryptocurrencies. There should be some concerns that the significant rise we have experienced since the beginning of the week could have a deep pullback and/or a return to creating lower lows. I have watched this market closely over the week and I’ve seen clear attempts to push this market lower with large block sells being thrown out – but they’re being bought up as fast as the charts print lows. I am seeing some evidence of some clear bear traps being formed on these charts – but there is also some strong evidence of bull traps being formed. It is very hard to want to participate in a market that has experienced such a strong and powerful drive higher. Another warning about this move is that as price has moved up and created some selling top patterns, the volume has been increasing near those pattern tops. Those are generally warning signs that a current trend may be ending, but this is Bitcoin and the cryptocurrency market – sometimes statistical norms don’t apply!