The Great Selloff of Bitcoin, A Christmas Gift
Bitcoin, for 6 days straight, has been falling. Yesterday I wrote about a possible reversal in the value area of $13,331. That did not pan out exactly as planned. In fact, we slumped right above the $10,000 price area. To put the move in context for the week, we have essentially had a 50% drop in Bitcoin’s price from touching $20,000 to right above $10,000. In fact, from last night (12/21/17) at 2000 CST to 0800 this morning, we went from $15,000 to $10,400, a greater than $4,500 drop. If 20% of a decline is indicative of a bear trend and a correction and great than 30% is considered a panic, then a 50% move is neither. It’s more like a Christmas gift.
Let’s look at the price action from last night and into today, the screenshot of this chart was from 1600 CST this afternoon/early evening.
1. This channel is where we were focusing our attention yesterday. We had been trading and respecting the bottom of the channel while also respecting the $15,000 level. However, when we broke that channel and the $150,000 support line, we just capitulated. The volume, however, was anemic on both buying and selling. In one hour, from 0600 to 0700, we dropped over $2,000.
2. Price did find support where we would expect it to be. We have a strong bias for supportive buying and structure here. Two support lines at 11250 and 10718. We also have our arc being treated as support (as it has done in the past). We also observed that there was a firm and violent rejection of further selling at the 11250 to 10000 zones which propped us right above our supportive arc.
3. This is about as obvious an example of bullish divergence can get. In fact, for the past few days, the hourly has shown us time and time again divergences in our oscillators.
4. This is the most important area right now. The bright fuschia line is our short-term trend line. On this zoomed in level, it does not show it’s true slope. This is a very, very steep angle. Steep angles mean something has moved to fast and too far. We would want to see price trade back into the channel and move all the way up and beyond the 16660 level. The orange line also shows us a very very important Gann date: December 22nd. December 22nd is arguably one of the most important dates in Gann theory. It is the end and beginning of many of his cycles. And today was that day. You will always find violent and irrational movements at or near December 22nd. It is the date that shows culminations or reversals of many long and short-term trends. In this case, I view it as a reversal and rejection of this selling.
What to look for
It is very easy to form biases in the direction of any market, especially if you have formed that bias before doing the analysis. I do see a great probability of continued movement to the downside, but there is a stronger case for bullish momentum. There is one thing greater than a panic sell-off; and that is the fear of the participants who let go of their holdings, turning their fear into a collective wave of revenge trading and recommitting to buying. Revenge trading is a horrible, horrible way to trade, but when it is done in mass and after such a massive 50% retracement, it isn’t just rejection, it’s conviction. If/when price retakes the $16,660 area, it will also be near the last arc. We need to absolutely demolish that zone like a Mac truck through tissue paper. This Chrismtas weekend will show us some moves to be sure. Trade safe and trade smart everyone. And have a Merry Christmas!