10.12.2020 Weekly Outlook (Mon)

Summary

First of all, from an actuarial background (as conservative as it goes in finance), I’ve never thought one day I would be giving a bullish bias on such a strong resistance, hinting a potential breakout. Well, but here it goes. It’s rare for the market to have a prolonged short bias, which (by probability) is much a better signal to reply upon compared to long biases. Furthermore, we broke the triangle, and the twitter news, and the on-chain pickups, and some Chinese information channels we have… So, even with a $300 gap, and bearish divergences that yell a correction in the short-term, I’m going to call bullish here. At times, the short-term gain/loss becomes less significant compared to the mid to long-term potentials (by short-term, I mean within 7 days since that’s how often we publish).

Fundamental Analysis

Smart Money Action

Bullish (Long-term)

Similar to last week, the on-chain smart money indicator is recently giving out accumulation signals. This indicates smart money has been accumulating during the past few weeks despite the price drop from 12k, and further indicates a strong support at 10k. This is a bullish sign for Q4. Price generally goes into a bullish trend when on-chain smart money accumulation is found. Can we drop in the short-term at all? If so, does that mean smart money made a dumb decision? Yes, then no. In Nov 2018, smart money accumulation is spotted at 6k, and price dropped to 3k in the next 2 months with more accumulation happening. While the BTC accumulated at 6k took an almost 50% loss, price soon rose to 12k+, generating a 2x.

Grayscale: raised $900M in Q2 (its ATH quarter since inception). Even though $900M is not significant when compared to the mkt cap, it does indicate a switch in accredited/institutional investors’ view on the crypto space – where the money comes from to push the next ATH. We’ll keep an eye out for Q3 stats, which hasn’t been released yet.

Aside from the Twitter (Square) $50M BTC purchase, Chinese smart money is also on the move.

Miner Action

Bullish (Long-term)

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).

Market Sentiment

Neutral

Overall market sentiment remains neutral. For the seller group sentiment, this group is still in a bull trend. As mentioned, 10.5k was hit in the past week, but the “decr. in supply” alert didn’t show up. With the current development, I wouldn’t wait for the alert for bull entry.

Margin & Futures Market Actions

Neutral TO BULLISH

Daily chart speaking, the margin market has been on the bearish side since the drop to 10k. Even though mentioned often, I’ve never quite covered the significance of this situation. 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. Check out the resemblance with early May 2019. Also, believe it or not, at the current moment, BTC is overly bearish. Yes, after an 8%+ rise in the past 72 hours.

As for the CME institutional traders’ positions, the potential downtrend was rejected this week with a small uptick. We will still watch this metric closely.

Global Market Impacts

Neutral

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.

CME Gap

Neutral to bearish (Short-term)

Yes, there’s a $300 CME gap below us. However, given other bullish considerations, I’m not going to bet this gap closed in the coming week. The “neutral to bearish” is assuming we only analyze the CME gap without looking at anything else.

Technical Analysis

Support / Resistance

Neutral

Similar as last week, short-term resistance at 11.9k. Support now at 11.2-11.3k (past resistance). SL for long could be set around 11k.

Elliot Wave

Bullish (Mid-term)

see chart above.

RSI

Bullish (Mid-term)

Daily RSI looks bullish. Bull trend support (40) held, and we are finding support above RSI’s MAs. MA up-crossed. If we do drop in price, there’s a strong support at MA & trend-line. 

MACD

Neutral

Bearish for the short-term. Bullish for the mid to long term.

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