Cryptocurrency Trading:  Why Bitcoin is Triggering New Round of Multi-Month Buy Signals… Corroborating What Was Signaled in late-Dec. ‘18;  Could a Dollar Decline Help?

Cryptocurrency Trading:  Why Bitcoin is Triggering New Round of Multi-Month Buy Signals… Corroborating What Was Signaled in late-Dec. ‘18;  Could a Dollar Decline Help?

03/18/19 – The Bridge – Currency Wars & Cryptos II: 

In the case of Bitcoin and other cryptocurrency, it is beneficial to know what to expect over the next couple months… as well as the next couple years as the subtle assault on the US Dollar is likely to become more overt.  So, a broader assessment of prevailing trends is necessary.

The Monthly Trend

The monthly trend is neutral.  While plunging for a precise 360-degree movement – from a high weekly close on Dec. 10 – 14, 2017 to a low weekly close on Dec. 11 – 15, 2018 – Bitcoin neutralized its monthly uptrend multiple times.

However, it would not turn that monthly trend completely down until a monthly close below 3158/BTC.

That single factor is very important, since it allows an investor to draw a few basic – but very determining – conclusions.  The first is that Bitcoin’s plunge was not as technically damaging as it could have been – on a 3 – 5 year basis.

Yes, it was a massive bubble bursting that resulted in losing ~84% of its peak value.  That is exactly what the Nasdaq 100 & QQQs lost in 2000 – 2002.

In the case of the Nasdaq 100, it never violated the 2002 low (one of the only indexes to hold that distinction during the 2007 – 2009 meltdown) BUT it basically consolidated for the 8 years following the 2002 low.  It spent 5 years recouping ~40% of its losses, as it rallied into late-2007, and then promptly gave back ~90% of those hard-earned gains in 2008.

It then spent the ensuing ~2.5 years rallying back to the highs and peaking in early-2011.

Do you notice how the duration of the March 2000 – Oct. 2002 decline (~2.5 years) set the cycle for the following decade?

The Nasdaq 100 pulled back into Oct. 2011 (~2.5 years from its March 2009 double bottom) and then began a breakout advance – finally confirming a breakout uptrend in late-2012, ~10 years from the late-2002 low.

The first phase of that uptrend lasted into 3Q ’15, when stocks suffered a sharp correction into early-2016.  The Nasdaq-100 remained in that consolidation through 2Q ’16 (~7.5 years from its 4Q ’08 bottom) and then surged into 3Q 2018.

The Nasdaq 100 then suffered its sharpest drop, since 2008, leading into late-4Q ’18 – the same time that an uncanny ~3.25-Year Cycleprojected a multi-quarter low in equity markets and in a majority of the primary indexes.

It bottomed almost exactly 10 years from its 4Q 2008 bottom – in 4Q 2018 – reinforcing the 2.5/5.0/ 10.0-Year Cycles that have governed the NQ-100 during this century.

The Application

So, what’s the point in belaboring analysis in tech stocks… when discussing cryptocurrency?

The reason for reviewing that is to illustrate how markets – and their cyclic movement – often ‘cast their shadows ahead’.

When the Nasdaq 100 plummeted for ~2.5 years, it cast the die for future cycles and movements.  Most of the significant trends, trend changes and/or trend turning points have adhered to that ~2.5-Year Cycle (and its multiples) since then.

Similarly, Bitcoin et al could be revealing its future cycle movement with the recent ~1-year decline.

In the case of tech stocks, the NQ-100 remained in a wide (though potentially lucrative) trading range for the next four phases of that ~2.5-Year Cycle.  Yes, it had major, multi-year moves up and major, multi-year moves down.

However, it took ~15 years – from early-2000 until early-2015, before that index made it back to its previous high.

That is also the nature of a bubble and its bursting.  Many bubbles burst and are never seen again (think Tulip Bulb Mania) while others collapse in price but remain a viable entity for years or decades to follow (think South Sea Shares bubble; see page 3**).

The Nasdaq 100 action, of 2000 – 2002 (and since then), reinforces that a bubble bursting does not mean the end of an asset’s viability.  It simply means it got WAY ahead of itself and needs to reposition.  That repositioning, and recalibration, often takes multiple cycles to return to a point of equilibrium and prepare for a new advance.

The same could be true of Bitcoin… and that is what the monthly trend is also reflecting.

That trend action reinforces that the drop into Dec. 2018 was a simple rebalancing of Bitcoin’s value – heading back to a point of equilibrium after a parabolic and irrational surge to levels that were never justified.

Had Bitcoin continued to return a very healthy 20 or 30% per annum gain during 2017, a pullback to ~3200 would have been barely noticed.  The problem is that it surged above 19,000 in the interim.

Bottom Line:  The monthly trend pattern signals that the Dec. 2018 low should hold for 6 – 12 months or longer.  Dec. 2019 could time another low.

Bitcoin is triggering a second round of buy signals that project a sharp rally beginning in late-March.  In mid-Dec. 2018, Bitcoin reached its major, 6 – 12 month & 1 – 2 year downside target at ~3,200 as cycles were bottoming.  It now has multiple indicators turning positive that project an accelerated advance in the coming weeks and months.  Dollar cycles and indicators concur and pinpoint April as a pivotal time.

If Bitcoin can trigger one additional signal (by/in late-March), it would elevate this rally to the next higher level and project an advance into June/July 2019 – in opposition to Dollar cycles.

See Weekly Re-Lay & INSIIDE Track for additional analysis and/or trading strategies.