Cryptocurrencies should see a minor throwback
A test of the bull flag breakout would confirm higher prices. Throwbacks are common and even desired.
Total Market Cap Chart
The chart above is Tradingview’s aggregate cryptocurrency market cap chart. At the time of writing this article, the entire market cap is down nearly -4% (-3.85%). The blue and red channel is a regression trend line. These are very similar to parallel channels, but they do differ. Where a parallel channel measures a specific high and low, the regression trend channel creates the upper and lower bands using a defined standard deviation from the baseline. I sometimes prefer this type of channel because it shows which moves are far beyond the baseline measurement. It also provides significant strength to any move outside of the bands that shows a failure to return inside the channel, indicating a probable breakout or breakdown.
Looking at the chart above, we can see price has broken out above the current regression channel. The market cap has spent the past four days above this channel. Remember, the most probable behavior, when price breaks away from this channel, is for price to return to test the breakout. In the case of this chart, we would experience a throwback (some call it a pullback, there is a difference). A throwback lower to test the breakout here is perfectly normal. I also indicated that it is often the desired move as well. Conservative breakout traders often prefer to trade the retest of a breakout rather than the breakout itself. The reasons for this are varied, but the primary reason that some traders prefer to trade the retest of a breakout is that most of the time a breakout doesn’t just continue, it will often pullback or throwback. Both throwbacks and pullbacks are moves that test the participants.
From a bearish perspective, a throwback is an opportunity to return back inside the channel to see prices move even lower. From a bullish perspective, bulls need to support price as it returns to the top of the channel and then keep price moving higher. It is the latter scenario, the bullish scenario, that many conservative breakout traders wait for – the wait for the retest of the breakout to confirm it as a new support level that will yield higher prices. You will often see massive participation on the buying side if support against the upper channel line is maintained.
But here is the ugly part: a throwback to test the breakout means the cryptocurrency market cap would drop at least -12.02% from Tuesday’s open (August 6th, 2019). I find this move to be very likely for two reasons. First, the 4/8th inner harmonic is where we are currently finding price resistance against. Second, that price resistance is occurring right on the end and beginning of a new Law of Vibration time cycle. From a psychological perspective, it would be better if price were to reach the breakout level sooner, rather than later. A band-aid that is pulled of swiftly is better than one torn slowly.