Tuesday, January 9, 2018

Crypto Update – Bitcoin Bulls, It’s a Matter of Degree!

Yesterday I said, “Time to buy Bitcoin with Both Fists!”

Well, today I’m saying that’s still true, but I think my call was about a day and a half early! 

When counting waves, sometimes it’s difficult to know what degree the waves are.  This is because each and every wave is itself comprised of smaller waves, while simultaneously it is also a part of a larger wave.  So, it truly is a matter of degree!

One clue that I was early yesterday was when I noted that wave 2 happened faster than expected.  I now think that’s because wave 2 was only half over, it needed an equal amount more time – and that fits better with the time length of wave 1.  Wave 1 up was about six days.  My thinking was that wave 2 should be about half that, or a little more.  That would make wave 2 three to four days long – it could finish tonight.

Also, we did break the (a) wave downtrend which was saying that the trend had finished.  But in fact there was a larger downtrend line that made itself clear today which the two halves of a larger ABC are following downward.

If this is what’s actually occurring, then we should bottom out in the next day or so, and at a target where the length of the last c wave is equal to the one prior which puts it potentially at the $13,800 -$14,200 range.

Also, this wave 2 down is producing an outline for a potential “fork” path/channel higher once it completes.  I think it coincides nicely with the “magnetic red uptrend arrow” I’ve been tracking.  The more touched and bounces off a line, the stronger the magnetic force!  This is what makes a channel and a "fork," the magnetic line is the center point – think about waves on an oscilloscope, the energy can only get so far from the center, then it pulls back.

Here’s a close in view of wave 2 and the updated count:

While I think this looks correct, there is also a rather scary potential H&S when I zoom out.  It doesn’t look right because of the recent declines below what would be the neckline, but I can see how someone bearish could read this count in a bearish way.  So we need to be cautious until the current downtrend is finished.

That’s what makes a market, isn’t it?  Some can see a bear case, while others see a bull case.  I’m pretty sure the bears are going to be wrong, but this wave 2 is certainly large enough to scare us Bitcoin Bulls.

Here’s a zoomed out view of the Bitcoin chart:

I know that very few of you are Elliott wave, candlestick, and Fibonacci experts!  So please forgive the technical jargon.  I do try to mix in education when I can, so today let’s talk about the three analytical components of any market, they are Fundamental, Technical, and Psychological:

1.  Fundamental:  This is the underlying reason why a market is traveling a certain direction.  For example, right now all the markets are going up strongly.  Stocks, Bonds, real estate, Cryptos, commodities – heck, everything.  The reason is simple.  Central banks around the world have created too many debt Dollars and other currencies.  Thus when measured in dollars, stocks, real estate, Bitcoin, trade, profits, and well, everything measured in Dollars, appears to be going up, up, and up!  But it’s an illusion – we are simply making dollars, and that gives the appearance of a strong economy, regardless of whether it actually is or not.

Also, since the Bond market was in a bubble, as the “FED” raises interest rates it causes money to flee bonds and go elsewhere.  There were trillions upon trillions too many dollars in bonds!  Heck, the Fed had nearly $5 trillion on its balance sheet alone!  Higher rates make bonds worth less, thus people flee them – that money then flocks to stocks and other assets. 

Another fundamental is that higher rate differentials cause dollars to repatriate to the U.S.  It is differentials, after all, that are the root of movement and energy.  By creating interest rate differentials, our Fed is causing dollars overseas to come back to the U.S. and again they flow into assets.

That’s THE fundamental driver – the overproduction of debt dollars.  Bitcoin is simply a mirror of bad policy and what was an illegal (true conspiracy) event in the year 1913.  In a nutshell, it boils down to the math that underlies it all (most can’t see how mathematical differentials are the root of all movements, that movement travels via waves – there are a lot of “experts” who will tell you that math has nothing to do with the movements of markets and they couldn’t be more wrong).

2.  Technical – This is the reading of the expression of the math that fundamentally underlies it all.  There are many techniques, each a lengthy topic of discussion.  But Elliott Wave count is an important tool, one that all investors should understand – even if it is easy to miscount until you can see all the waves in hindsight.

3. Psychological – As waves move, so too does the mood of the participants within a market.  Yesterday, I mentioned to watch the fear as Bitcoin descends steeply, but that fear will turn to euphoria as we get into wave 5 of 5 of 3!  That psychology also is a driver of energy and thus waves.  The psychology forces euphoria… the math grows until all the participants who can get into the market are.  Math takes over because all the money that is available is in, there’s no more (unless the Fed keeps printing trillions!).

This means that by definition, the majority of market participants MUST be wrong when at wave turn points!

You, however, can be one of the few that is correct, by understanding how psychology drives waves; how the math of money underpins it all; while technical analysis gives you a window through which to view it…

Best to everyone,