10.20.2020 Weekly Outlook (Tue)
Hope you are now in profit with last week’s analysis. I’m not taking profit at the current level and will wait for the market to get overly bullish before profit taking. Traders are paying premiums on the short side. This, along with such a bullish RSI, indicate a good potential of breaking the 12k level. For the week ahead, I’m expecting more side way actions. However, if we drop to 11.3k again, I’ll be buying. Keep an eye on the OKEx news. I doubt the lockdown will have any further bearish impact on BTC prices, but if the lockdown’s lifted, it could potentially be used as a bullish catalyst.
Smart Money Action
Grayscale raised $1.05 Billion in Q3 (its ATH quarter since inception). Do note, Q3 BTC price’s much higher than that of Q2. Along with on-chain proof of smart money accumulation & the 50% increase in USDT market cap since late August, there’s no doubt larger players are accumulating, and at 9k+ prices.
BTC mining difficulty is now 10x higher than that of end of 2017. This means, firstly, the security of the bitcoin network is improving significantly despite the price decrease compared to the 2017 20k ATH. Secondly, miners are profiting ever since the March capitulation, and more miners are joining the game at the current price level (the 11%+ difficulty adjustment was made in September).
Neutral to bullish
Overall market sentiment remains neutral. For the seller group sentiment, this group is still in a bull trend. With the current development, I wouldn’t wait for the “decr. in supply” alert for bull entry. 11.3-11.5k are all good levels at this point.
Margin & Futures Market Actions
Daily chart speaking, the margin market has been on the bearish side since the drop to 10k. With longing being a much easier strategy compared to shorting, it’s much harder for the market to have a bearish sentiment compared to a bullish one (left alone the constant interest rate component). In other words, prolonged retail bullish sentiment may not turn into a bearish price action and the price may go up higher with the sentiment being more over-heated. However, prolonged retail bearish sentiment often turns into bullish price actions. We are still net bearish, which means more upward momentum. This is exactly how we broke 6k in early May 2019. History always repeats itself in different shapes or forms.
1hr view: (not even close to overly bullish)
Global Market Impacts
Neutral to bearish
Let’s be clear. If the stock market drops 10%+, BTC will go down. For most investors, the hedge for low yield environment or political uncertainty is still gold over crypto. And even though BTC may recover quicker compared to stock indexes, the initial reaction is still likely correlated at this point.
So, the question becomes, “will stock indexes drop significantly in the presence of US presidential election, potential prolonged low interest rate environment due to COVID, and the heightened tensions with China?” I do think the two main factors to watch out for are the further US fiscal stimulus and the earnings season. In short, I think SPX has a high chance of correcting before the end of the year. Are you guys interested in the details?
Opened gaps everywhere, but not as significant compared to the other perspectives at this point.
Support / Resistance
Similar as last week, short-term resistance at 11.9k. Support now at 11.3-11.5k. SL for long still at 11k. For active traders, I think some profit taking at 11.9 would work. Just be careful about short-term flags forming and re-enter on lower channel.
See chart above. For the larger structure, I’m leaning toward the bullish count.
Daily RSI looks bullish. Bull trend support (40) held, and we are finding support above RSI’s MAs and the 60 lvl. MA up-crossed. This is as bullish as it gets for RSI. (Be careful using bearish divergences in the coming weeks. They could keep forming with price getting higher. For scalping, at least use bearish divergences and EW together, or targeting only 0.236 retracements.)
Bearish for the short-term (coming 2 days). Bullish for the mid to long term.