Market Update #1 (Bonus)
How low before we bounce?
Hello Everyone,
This is our first bonus content article, content that isn’t scheduled on the about page which I will supply as needed. This particular category of “Market Update“ will be a short market update in a less formal format compared to our weekly outlook article (A lot more rambling & immediate thoughts). I will make market update posts when I feel a more immediate post would be beneficial.
With traditional markets pulling down & Crypto following it, I thought it would be beneficial for us to look at some places we may bounce off of as it’s looking less likely we see an immediate bounce(Assuming the Fed doesn’t change its stance around hawkish policies & that crypto continues to follow traditional markets. When I say bounce I am referring to a switch in momentum from downtrend to uptrend).
The chart above outlines a couple of key regions in red where we have previously found support/resistance and therefore where I think we are more likely to see support/resistance if we revisit them (In terms of when we touch them where the blue edges are from the outside or when we are inside of them.
If we hit them from the outside it’s more likely we bounce off of them (at least temporarily). If we settle within the box we may bounce within its range. The boxes were made when considering prior ranges of resistance/support we settled within
The Yellow horizontal line shows where the 200 Weeks SMA currently is which often functions as the last line of support for the markets. Bitcoin has gone below it before but quickly shot back up to it when it did (Spent 1-2 weeks below).
As I have mentioned in one of our previous outlooks I look at this pattern as being similar to the drop during the 2013 run where we saw the markets wait for the price to consolidate and more confidence to build before continuing up. I still feel we are seeing something like this although how far it goes will depend on where you model the top. If you use the candlewick Bitcoin dropped 75% (Current prices would be equal to a drop to $17,000 although that would be out of the model so I don’t expect it) before people bought back in and started the second leg ).
If you measure it from the top of the body of the candle it dropped 61% (If we saw a comparable drop with our current peak we would go to $25,000 ) instead.
In the current bull run, we have seen a drop from the top of 51%
As it’s normal to see less volatility as the market grows I would expect us to bounce prior to 61% and 75% but the market could always choose to drop a similar amount. The drop in march of 2020 was 63% which briefly (about 1-2 weeks) went below the 200 week SMA showing Bitcoin can still drop that much if it wants to on negative market news/drops (Ex: Covid or tightening monetary policies).
If we continued downwards it could lead to us dropping down to the 200 week SMA or a bit below it which we usually only do during bear markets. This sharp downwards motion would be similar to the steep price increase we saw during the start of this bull run except in the downwards direction. It could also hit one of the other red areas and bounce off prior to then, it all depends on what price causes people to FOMO in.
Another outcome is we could continue down and not bounce instead settling into a bear market although I would be surprised if this happened as previous cycles have lengthened & seen more returns on investment even when factoring in diminishing returns. Diminishing returns are expected as the network grows and becomes more mature but this would be a significantly sharper rate of diminishing returns than we saw in previous bull runs.
I am still of the opinion that we will see a FOMO-driven bounce to kickstart the markets & have bought some Bitcoin to hold on the way down. I plan to continue averaging in as we drop since accurately timing bottoms is immensely difficult and impossible to do consistently.
Disclaimer: The information in this Newsletter is not financial, legal, or tax advice. I only trade on Etoro; if you are reached out to by people requesting you join a group or provide money, it is not me. My only public social media accounts are this Substack page, my Youtube page, my Twitter page, and my Etoro page; any others you see online are not me.