DISCLAIMER; This post and its contents should in no way be considered investment advice.
Bear Market Bottoms Have a Lot in Common.
by MAX CMO Dan Clarke
In one of our recent pieces “Picking Bottoms & Capitulation”, we looked at the recent sell-off in Bitcoin arguing that it was reasonable to describe it as capitulation, given both the price & volume characteristics at play whilst recognising that confirmation of this, due to the lack of any reliable & commonly recognisable measures, will only be recognised in hindsight.
During the recent bounce I have noticed several well followed commentators arguing that because of the sharp rise off the recent bottom, that this is unlikely “THE” ”bottom. The thinking here here is that bottoms should see capitulation & then follow the pattern of a heart attack patients cardiogram, where the patient was unable to be revived. The reality is VERY different.
First example is S&P bottom in March 2009. A sharp 25%~ rally off the bottom in 2 weeks was followed by a brief period of consolidation before ripping higher once again.
Next chart shows the bottoming of the Nasdaq in October 2002. Once again a short sharp 20%~ rally over 2 weeks followed by a period of consolidation before ripping higher once again.
Next chart shows the bottoming of the Taiwan ETF during the SARS driven meltdown which hit the Asian region particularly hard in 2003. Once again a short sharp rally of 28%~ over 2 weeks followed by consolidation before ripping higher once again.
Now lets go back to Bitcoin in 2015 in what could best be described as a double bottom. The final bottom in late August/early September saw a 17% rally over 7days (Actually larger than the rally off the first bottom test in April and not dissimilar to the current 6day 20%~ move off the bottom) & after a brief period of consolidation began ripping higher once again.
In Summary a short sharp rally is very typical at the bottom of a correction. Technically this makes sense because on the final capitulation, so little time is spent trading at any one level resulting in no meaningful levels of resistance.
Using time spent consolidating around various levels can be a useful way to measure likely key areas of both resistance & support. The below chart shows 2years trading history of Bitcoin identifying zones of consolidation measured by time. As you can see there are remarkably few zones of lengthy consolidation.
On the bounce from recent lows it makes sense that we should find resistance at the 3800–4200~ range given around these levels is where we spent much of the August-October 2017 period (55~ days) before ripping higher. After that, 6000~ is the next MAJOR level of resistance given it’s one of the only levels we have spent any significant period of time at over the last couple of years (Total of 137 days~). On the downside, should we retest new lows, I personally think it would make sense to find a bottom in the 2500–2800~ range given the May-August 2017 consolidation (73~ days and 3rd longest period of consolidation over the last 2 years).
DISCLAIMER; This post and its contents should in no way be considered investment advice. We may individually hold positions in some of the assets we discuss. Any projections, conclusions, analysis, views are to be considered hypothetical & for informational purposes only & not meant as recommendations for investment. Anyone considering an investment in crypto should only invest what they can afford to lose. You alone are responsible for evaluating the risks & merits of our content.