A measurable across-the-board rally has occurred in the crypto markets. Does this rally spell the end of the massive bear market that cut most crypto prices by 90%? Is it time to get back on board the “bull market train?” Of course anything is possible in the crypto markets. These markets have re-written the rules on what is possible. While any strong bounce is encouraging, the weight of the evidence from an objective technical analysis perspective is that the crypto rally is a dead-cat bounce at worst and just the early stages of a bottoming process at best. I come to this conclusion based on three considerations:
- The weekly Factor Trend Model remains down in all major cryptos
- There remains a lack of recognizable classical chart construction bottoms
- BTC is the laggard – a rally led by alt coins and other macro caps is not likely to go very far
Bitcoin (GDAX and Bitfinex)
The Weekly Factor Trend Model remains down while the Daily Factor Trend Model turned up. There are NO signs of a classical chart pattern bottom on the weekly or daily BTC charts. While the combination of the small falling wedge completed on Dec 17 and channel completed this past week are a cause for some encouragement, these are not patterns that typically create a major market bottom. I will remain open to consider almost every possibility, but the signs of a major chart bottom are just not present. In fact, the current advance has not yet even worked off the oversold condition on the weekly chart.
One might ask, “But, is a major chart bottom necessary?” I believe it is necessary – and the history of BTC trading supports this contention. Let’s take a look at the chart developments that ended the 2013-2015 bear market. First, the advance in Jul 2015 penetrated a sizable bear channel. This development was NOT sufficient to launch a bull market. The channel was retested in Aug. Second, the advance in Nov 2015 completed a broad-based triple bottom or rectangle pattern. Third, those that missed the rectangle bottom had another outstanding opportunity to gain a long position when the advance in May 2016 completed a textbook continuation symmetrical triangle. Also, I should point out that this extensive bottoming process allowed the Factor Weekly Trend Model to turn up, which it did simultaneous with the completion of the rectangle bottom. Of course there was urgency for traders obsessed with catching the low to force their trading during the 2013-2015 bottoming process. But there was no urgency during this bottoming process for traders like me that want a market to prove itself before taking on a large risk position.
I continue to highlight two scenarios whereby BTC could be in a bottoming process at current levels:
- The #1-10 analog decline in BTC from Dec 2013 through Jan 2016 with an eventual retest of the Jan 2016 low in Sep 2016. The Factor Weekly Trend Model turned up in Oct 2015, a full 22 months after the Dec 2013 high. It is important to note that the same advance turning the Weekly Trend Model up also completed a textbook classical charting bottom (rectangle).
- The Gold decline from Aug 2011 to present [chart not shown]. By the way, Gold is currently below the level at which a major Weekly Trend and Chart sell signals occurred in Apr 2013. My guess is that major Weekly Trend and Chart buy signals will occur prior to Gold reaching the level of the Apr 2013 sell signal.
The daily chart could be forming a continuation symmetrical triangle wherein the current rally will become the fourth contact point (see red boundary lines). This is not a prediction, but something to watch.