Market Update:

Market Update – Finally Some Green Shoots of Optimism!

by decentrader · January 28, 2022

In last week Emergency Market Update, when the price of Bitcoin was at $39,200, we warned that a potential sharp drop was incoming.  

…we are expecting a liquidation event similar to that of 4th December 2021 and a move towards $33k in the first instance, possibly tagging the 100 Week Moving Average, at c.$31,500, but $33,000k also being a potential level for some relief.

Figure 1: The liquidity zone in last week chart subsequently got taken out as the price dropped to $33,000.

Several factors made us concerned:

  • Binance Longs/Shorts ratio was too high
  • High Open Interest
  • Lack of negative funding
  • Not enough long liquidations

Shortly after, price nuked down hard to the $33,000 level taking out a good chunk of stops around that price before bouncing.

Derivates Shift

Since then price has ranged and we are starting to see a healthier derivatives landscape.  

Notably, we are starting to see:

  • More consistent and greater levels of negative funding the past few days
  • Longs/Shorts ratio has considerably dropped
  • Open Interest levels have cooled down somewhat

Figure 2: More encouraging derivatives conditions for the bulls.

Sentiment is Suffering

The drivers for this change are a combination of consistent ‘down only’ $BTC price action for almost three months now, combined with global macro fears around Federal Reserve tapering and Ukraine tensions boiling over.  

The net effect of this is that bullish market sentiment has been completely exhausted.  This can be seen in the consistent length of time that the Fear and Greed Index has remained within Extreme Fear.  Extreme Fear is classed as a score below 25.  The index has not been able to pull out of this zone for more than 3 weeks now!

The only other two times this happened (within the time periods the indicator was running) were at the 2018 bear market lows and the 2020 March covid crash.  Not even in the bearish price action of last summer did we see such a consistent period of Extreme Fear.

Figure 3: Sentiment has now been scoring Extreme Fear for over 3 weeks.

We believe that the current derivatives landscape shift and this extremely negative sentiment backdrop does increase the potential for at least a near-term relief bounce.

Trend Change – Predator

We are now also beginning to see meaningful buyers step in, which is driving a potential change in the higher time frame trend from bearish to bullish. Predator Indicator is showing attempts at bullish trend confirmation across multiple timeframes right now:

Figure 4: Predator cross timeframes.

At the time of writing the trend breakdown across timeframes is:

  • 1hr: Bullish
  • 4hr: Bullish
  • 12hr: Bullish
  • 1D: (Teal) bullish
  • 3D: (Teal) bullish
  • 1W: Bearish

After the Predator indicator highlighted the start of the bearish trend back in early November, this is the first time in nearly 3 months that across timeframes we are starting to see potential bullish trend continuation signals.

Near Term Support and Resistance

Moonraker is our go-to tool for identifying where key support and resistance levels lie.

Near term, resistance sits at $38,850 – $39,700.  Beyond that $47,900 and $53,400.

Support remains for now at $32,700 though there is some argument to suggest that price reached that level with Monday’s wick falling just $300 short of it.  Beyond that level, the next support is just shy of $30k, at $29,650 leaving the door open for a potential sub-$30k liquidity grab.

Currently, price has reclaimed the mean reversion line, which is bullish and we are monitoring whether price can push away from the mean reversion level towards resistance.

Figure 5: Moonraker tool highlighting key support and resistance levels.

Note how scalp-traders would have performed well using the Moonraker volatility bands in this downtrend, with clear scalp trade opportunities as price bounced from the green volatility bands back to the mean reversion line.  You can learn more about this Moonraker strategy and others here.

So we believe Bitcoin is in a healthier position going into this weekend versus last weekend.  There is evidence of buying volume finally stepping into the market, which is opening up the possibility of a trend continuation to the upside.  But with uncertainty still king for now, we continue to be mindful of volatility and downside risk as Bitcoin finally attempts to shift from a bearish trend to a bullish one in the near term.

Have a great weekend,

The Decentrader team.

 

Disclaimer: Nothing within this article should be misconstrued as financial advice. The financial techniques described herein are for educational purposes only. Any financial positions you take on the market are at your own risk and own reward. If you need financial advice or further advice in general, it is recommended that you identify a relevantly qualified individual in your Jurisdiction who can advise you accordingly.