Not since Dandy Don Meredith have we seen such good ol’ Texas gun-slingin’ as that that’s been associated with the bitcoin phenomenon, especially over the past year or so. This is our inaugural attempt at slappin’ some technical leather on this hombre and our very last hokey reference to the old wild, wild west (we absolutely promise). After all, the mere fact that the CME has created a futures contract on this market lends it some legitimacy. How long this will last however remains to be seen.
A Little History
As actual CME Globex futures data remains very limited as we’ll show below, all historical references are indicated by the Bitcoin Real Time Index provided by the CME Bitcoin Exchange. The monthly log scale chart of the Bitcoin Index below shows a low of (believe it or not) a penny back in Oct 2010. This market experienced in whopping 85% correction in linear terms from Dec 2013 until Jan 2015 before resuming its stratospheric rise. On the log scale basis below however, this 14-month correction appeared tame. Traders dipping their toes in the bitcoin water are urged to become familiar with this key difference between linear scale and a logarithmic scale that allows us to compare percentage moves in a market.
From that Jan 2015 low of 170, the weekly log scale chart below shows the insane 11,244% rise to last month’s 19285 high. Interestingly, and again, on a log scale basis, the corrections that have riddled this incredible bull from that 170 low in Jan’15 all covered about the same “area” with setbacks between 35% and 39%. The recent setback we’ll detail further below from 18-Dec’s 19286 high to 22-Dec’s 10913 low spanned 43%, so the current technical debate centers around whether the recent setback is just another correction OR the early stages of a more protracted peak/reversal threat.
As a comparison to evidence the merits of a log scale chart under following such stratospheric moves, the weekly chart of the Index on a linear scale renders all of 2015 and 2016’s price action virtually useless when comparing it to the past few months’ behavior.
Recent Bull Interruption
The daily log scale chart of the Index below shows a confirmed bearish divergence in momentum when the market failed below 13-Dec’s 15772 corrective low on 20-Dec, identifying 18-Dec’s 19286 intra-day high as one of developing importance that can be used as a key risk parameter this market now must recoup to reinstate the secular uptrend. While that 19286 high remains intact, we believe this market is vulnerable to a larger-degree correction or reversal lower. We’ll include ancillary evidence below that defines Fri’s 15090 high as a recent smaller-degree corrective high and short-term risk parameter this market is minimally required to recoup to defer or threaten this peak/reversal count.
The last time the market experienced such a momentum failure was on 14-Sep when it confirmed a bearish divergence below 22-Aug’s 3601 corrective low. The setback ended the next day at 2991 and the market recovered to eventually confirm that sell-off attempt as a relatively smaller-degree correction rather than a more protracted correction like that that unfolded between Dec’13 and Jan’15 discussed above.
Drilling down into that 2013-2015 correction however, the daily log scale chart below shows that this larger-degree 85% correction began in exactly the same bearish divergence way as the Sep’17 correction and the mid-Dec’17 correction. This highlights the importance of identifying highs and risk parameters like 19286 and 15090 that the market can now be required to recoup to defer or mitigate a more extensive correction lower. Once the bottom falls out like when the market broke 09Dec13’s 779 low on 16Dec13, the damage and risk of cataclysmic loss is done, even though the market rebounded/corrected sharply before an even more protracted correction set in.
Extrapolating 20Dec’s momentum failure in the Index to the Jan futures contract in the daily close-only chart below, the bearish divergence in momentum was confirmed with 20-Dec’s close below 14-Dec’s 16810 corrective low close. This mo failure is a technical fact that defines 15-Dec’s 19500 high close as one of developing importance and THE risk parameter this market now needs to recoup to reinstate the secular bull and confirm the interim sell-off attempt as another mere correction. Until and unless the market recovers above this 19500 high close, the extent of any correction or reversal lower is indeterminable.
Arguably reinforcing at least interim weakness and vulnerability, the hourly close-only chart below shows an initially trendy, impulsive sell-off to 22-Dec’s 12300 low followed by an exact (16464) 61.8% retracement and accompanying bearish divergence in short-term momentum. Following a relapse to Thur’s 13360 low, the market’s recovery stalled around the (14818) 50% retrace of the preceding 16435 – 13360 decline after another 3-wave and thus corrective recovery attempt.
The latest relapse into today’s low then defines Fri’s 14880 hourly high close as the latest smaller-degree corrective high and new short-term risk parameter this market is now minimally required to recoup to threaten a more immediate bearish count and resurrect at least a corrective/consolidative affair from 22-Dec’s 12300 low that could easily see a spike back towards 27-Dec’s 16435 high or above. But until and unless such a spike takes out 19-Dec’s 19500 high daily close, such a spike could be the same corrective type that described the late-Dec’13/early-Jan’14 (B-Wave) rebound before the market spent the rest of 2014 going blotto.
These issues considered, Fri’s 14880 high hourly close in the Jan contract is analogous to Fri’s 15090 intra-day high in the Index discussed above. Strength above these levels is minimally required to mitigate a more immediate bearish count and expose at least a steeper retest of Dec’s more significant highs and possibly a resumption of the secular bull. In lieu of such minimum strength however, we believe this market is vulnerable to further lateral-to-lower correction that could morph into something extraordinary on a break of 22-Dec’s 12300 low hourly close.
We’d also be remiss if we didn’t state that we believe the circumstances of this market’s stratospheric ascent poses extraordinary risk and remains exposed to volatility the likes of which have rarely been seen, EVEN IN THE FUTURES MARKETS. Trying to dissect/analyze/trade this market on any sort of shorter-term, intra-day basis (like we tried to do above….basically because it’s all the futures data we have) may not be suicide, but it does call to mind a Woody Allen quip about death: “It’s not that I’m afraid to die, I just don’t want to be there when it happens”.
Good luck with bitcoin futures.