10.26.2020 Weekly Outlook (Mon)

Summary

As we are approaching the long established 13.5-14k resistance (much stronger than 12k), the question now becomes, is this the temporary top or will this resistance send us back to the land of doom. Our take is the former. Fundamentals are still looking solid, and daily RSI, MACD, Elliot Wave are all pointing to continued bullish momentum. Most importantly, retail future mkt sentiment is nowhere close to overly bullish, which generally occurs before large corrections. For the short-term, however, we are over-extended, hitting quite a strong resistance, and w/ a short-term EW sub count finishing 5 waves soon. This means, I will be considering some profit taking and will re-enter on conservative support levels.

 

Fundamental Analysis

Smart Money Action

Bullish (Long-term)

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.

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

bearish (short-term)

bullish (long-term)

Overall market sentiment is now on the bullish side. On-chain data shows a potential cool down needed, which is consistent with the technical short-term bearish view. For the seller group sentiment, this group is still in a bull trend. Considering we are now approaching a key resistance level, a “decr. in supply” alert is likely for the next bull re-entry.

Margin & Futures Market Actions

BULLISh (long-term)

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 now net neutral. Do note retail margin sentiment was net bearish, neutral, then net bearish again before breaking 6k in May 2019.

CME Gap

Neutral

Opened gaps everywhere, but not as significant compared to the other perspectives at this point. To me, the significance of gap filling is rather short-term. After a week, even though the gap could get filled, it’s extremely difficult to trade on as it’s impossible to know when.

Technical Analysis

Support / Resistance

bearish (short-term)

Resistance now at 13.5-14k. Support around 12.35k. Do note the 14k resistance was established since the 2017 20k high. This level not only is in the 0.618-0.65 Fib golden retracement level, but also has met strong reactions in early January 2018 and late June 2019 respectively. Downward pressure is expected. 

Elliot Wave

bullish (long-term)

Nertual to bearish (short-term)

Elliot wave: see chart above. As mentioned last week, I believed in a 70/30 probability between the bullish and bearish counts. With the current development, the bearish count is completely invalidated. Can we have an alternative bearish count? Yes, we could be in a leading diagonal finishing wave 5, but there are many issues with this count. Thus, a very small likelihood.

RSI

Bullish

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.)

MACD

bullish

Daily no sign of losing strength yet.

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