In the last days XBT/USD started to break below the long term VWAP (~$445) and if it makes further downside progress the breakout will become very obvious.
It would probably be followed by a move down to the old April 2013 Top at $266 confirming the giant descending triangle that it is forming.

Such a breakdown would be very bearish IF accompanied by a dropping network difficulty as happened in 2011 during the bear market.

As you can see in the attached chart that on the two previous tests of the VWAP (December bottom at 382 and february bottom at $400) the market reacted strongly and quickly instead this time it is spending too much time around the same support, this is an indication that probably XBT/USD is going to break below it.

In case of a confirmed break below $440 for this week support level should be around $330-$350, i don’t think that XBT/USD will go straight to 266$.

So far I have been talking about bearish potential. There is still a chance (probably 20%-30%) that this potential will not be realized and that new bull market highs lie ahead if XBT/USD stays above long term VWAP. In case of a reaction from here first resistances are at $550-$580.

 

After failing to stay above my weekly moving average ($616) and VWAP computed using last 2 months ($611) the XBT/USD moved back to a short term downtrend with a lower top at $631 (12 March) after the previous one of $710 (3 March); supports are now at $534 and $457 as indicated in the attached chart.

RSI is very low, very oversold and at this point i’d like to see a decent reaction at least up to the VWAP at 610 dollars but i’m not so sure about it because of the overall bearish outlook on a weekly basis. I think that the market might break below the 541$ recent low because of a big descending triangle that it is forming on the weekly chart, and moves all the way down to the $440-$450 price zone where i think strong buyers will come back for a new buying opportunity.

 

Bearish Scenario
If this market decides to move well below my long term $440 support I think it will spend there the right amount of time required to scare weak investors, forcing them to sell their bitcoins to long term experienced investors.
Where? The final bottom should be probably above the April 2013 top at $266 but as long as XBT/USD stays above my $440 long term VWAP support this bearish scenario remains only an hypothesis.

Not much happened since my last update ten days ago, the market volatility dropped a bit and XBT/USD is struggling to stay above 600 dollars. It is a characteristic of this market because it is composed by amateur investors they don’t have the patience to hold and after a while if nothing  happens they start to sell for eventually rebuying later. Aniway I summarize the situation as follows:

Bullish aspects:

• Price above long term VWAP (now at $440)
• Slope of ALMA moving average slightly positive

Bearish aspects:

• Weak buying volume activity
• Ratio between buyers and sellers is negative, and it has been so since December $1200 top
• Market reactions to good news has been sluggish since january $1000 top on zynga and facebook news, this is not bullish, investors are reluctant to buy on good news.

Conclusion
I think that this market will need time to absorb the “huge confidence hit” because of MtGox fiasco but as long as it stays above the one year VWAP ($440) i’m not worried for a possible bear market coming. For who has been ruined by MtGox and its phenomenal CEO and wants to enter again in this market there are two possible strategies:

1. buy now 100% of your position
2. buy now 50% and the remaining 50% if bitcoin retest again my long term vwap around $450

Stoploss for both strategies could be a weak market going under $350-$400 for a prolonged period of time and a dropping network difficulty (currently on a strong rise).

Since my last update XBT/USD showed strength above $600 this means that the short term bearish trend is almost over but I need to see the upvolume/downvolume ratio computed on a 3 days chart becoming positive before opening a long term position.

Another positive aspect is that the ALMA moving average slope is now positive, an important bullish sign.  For an investor who wants to play very safe with their money i recommend to wait a confirmed bullish volume activity because, as I said before,  the up/down volume ratio is still negative; why? Well because it’s not enough a strong and quick spike up to $710 to erase weeks of weak market performance.

The intentions of the market to goes up must be confirmed with solid buying from investors but for who wants to try to anticipate the market i recommend to place a buy order in the $600-$620 price zone, in the short term this market should found support there, above the 3 days ALMA moving average now at $605.

I attached here on the left a long term chart where each bar represents three days of market activity, as i said in the past this particular time frame is a good compromise between a weekly chart and a daily chart.
Despite the recent strong rebounce from my long term support around $420, the ALMA moving average is still pointing down confirming that XBT/USD is in a short term corrective phase inside a long term bull market because the price during last months has been always above my long term vwap, now at $430 and also above the 200 days moving average now at ~$470 and rising.

About volume activity the “volume ratio” indicator tell us that the situation is still very oversold and all the recent bearish news and the excess of pessimism among many investors let me think that probably the bottom is in but to avoid any risk before opening a long position is wise to wait a positive volume activity that should be back once a new uptrend is established and confirmed by the reversal to the upside of the ALMA moving average i use.

To conclude XBT/USD remains in a corrective phase inside a long term bull market, the rebounce should stop near $600 where there is the ALMA moving average to act as resistance level. Any strength above $600 could mean that the short term bearish trend is over and that this market is headed up again.

BTC/USD is trading beneath its 50 day moving average today as I write this, that average is now at $780. Coupled with the high volume on the downside, especially in the last 10 days,  this is solid evidence for a reversal of the short term market trend from up to down.

I think that BTC/USD will drop 200 dollars from here down to the long term support, my long term VWAP calculated using last one year of data.

If I am right about this the prognosis calls the bottom should develop as a conseguence of the MtGox drama, that exchange (if we can call it an exchange…) is almost out of business, my guess is that it is down of bitcoins and with strong manipulations of the price they are trying to recover the money lost due to the malleability issue from their own customers, this practice is of course totally illegal in a regulated market, i don’t want to go in the details but looking MtGox price and volume data there is a strong evidence of such activity.

Back to our long term chart, is this the start of a bear market? I think it is too early to tell. The 200 day moving average is around my long term VWAP  so a drop under it would be the first clue that a bear market has begun. Also the other kind of average i use, the ALMA moving average, turned negative during the prolonged trading range of January.

I added a new indicator, similar to my “net volume” indicator, the only difference is that it computes the ratio between buyers and sellers and it has been remarkably accurate staying in bearish territory since November top; it looks good as a trend following tool.

For the short term i think the price is now in a congestion in the $520-$720 price zone, a strong bottom where to shake out all weak hands is necessary and very healthy in my view and  if  this event will be accompanied by MtGox going out of business indefinitely, then the bitcoin market will be ready to move up again.

As i thought the trading range has been broken after 30 days, it’s very unlikely to see more then that for a market congestion and with no exception this market respected this common rule. For the majority of the time prolonged trading ranges resolve with a strong break to the downside once the smaller trading ranges are broken.

I’ve now two support levels, 640 and 515 dollars for the short term and i think that in this price zone some buyers will show up. For the long term supports are on my long term VWAP ($400) and the 200 days moving average now at $420.
Many are arguing that we are falling because of MtGox, i don’t agree with this view, it’s just an excuse to sell we all know that MtGox is out of business since months. When the market is in low sentiment regime good news are ignored and overreactions to bad news from investors are common.

Congestion occurs when four consecutive bars open or close within the range of a “measuring bar”. A “measuring bar” becomes such when its price range contains the opens or closes of at least three of four subsequent price bars. As i said in one of my old post sideways price movement may be broken into three distinct and definable areas:

1. Ledges – less than 10 price bars
2. Congestions – 11-20 price bars
3. Trading Ranges – 21 bars or more with a breakout usually occurring before the thirtieth bar

Now 13 days are gone without a breakout above or below the “measuring bar” (i consider the bar of last 7 January the measuring bar) and we are in a congestion; I don’t think the market is still following the triangular descending pattern that I mentioned in the previous update.

I expect to see a breakout in the next 5-10 days, unlikely that this congestion will last more then 20 days in a volatile market like this. Top of the congestion rectangle is the first deviation line of VWAP around $930, while the $765 static support just below the VWAP defines the bottom of the trading range.

I think that without a really bad news investors will not sell their precious bitcoins under $750, I believe that the positive sentiment of the market will slowly push prices higher outside the current congestion, possibly above $900 and toward new highs but this process will require some time.

 

 

The market in the last few days has done what I was expecting, it hesitated and dropped down to the support, the VWAP positioned at $ 765, here it slowly climbed back up to $ 900. Now we have two resistances, 920 dollars and 1067. 

I expect a little more resistance to advance this time but if it passes the psychological threshold of $ 1,000 it could also go beyond 1067$ (second deviation line of vwap) and it might try to attack recent all time top at 1163$.
The “net volume” oscillator  has been a bit  weak lately, at the end it can be considered neutral and is not yet seriously a danger to the current rise of prices.
For those who are invested for the long term I suggest to keep your position open for now. Stoploss should be positioned below long term VWAP now at 375$.

A couple of days ago one of my reader asked me about price and volume divergence, i decided to answer to him with this post talking again about it.

All the readers that follow me since 2011 know that i use a “net volume” indicator to understand the activity of buyers and sellers, it is computed taking the difference of a security’s uptick volume minus its downtick volume over a specified period, here i compute it on a daily basis with a 7 bars summation  (an entire week because it’s a daily chart). 

Often traders use such an indicator to judge the momentum or trend of a security in order to make assumptions about its future price movements. Net volume is an indicator that is also very similar to the idea of money flow and its indicator, the money flow index.

Now BTCUSD is hesitating around a price resistance (first positive deviation line of VWAP) but net volume is positive and till it remains positive i do not expect to see stronger down movements in the price, although we might see some consolidation beetwen the VWAP at 765$ and the actual price of $900.

What we are seeing is a decent rally that it is still emerging from a severe December drop; i expect to see some resistance around the first deviation line at $900, it’s the same deviation line that marked the top at $980 before the crash down to $382.

The RSI oscillator is overbought,  when this occurs, the Market almost never makes a final high. That means the Market will most likely go higher in the medium term so it could be a good idea, for anyone wanting to buy into the currency, to buy at market and place a stoploss below the current VWAP level ($733).

The net volume activity is positive, finally, after more then 30 days of bearish volumes; it’s a first confirmation that the BTC/USD is headed towards further highs.

I attached here on the left a chart where each bar represents three days, it is something new and a good compromise between a weekly chart and a daily chart, enough to filter out noise but not too slow like the weekly chart.
For those who follow my blog since a while know that i use this type of media, the ALMA , a good tool to use in long term charts.
This average is now pointing down confirming the corrective phase but we are still in a bull market because the price during last months has been above  the long term vwap, now at $340 and also above the 200 days moving average now at ~$250 and rising.

Looking volume activity the net volume has been negative since the first days of December, at some point it was improving but the second bad news from China about the ban on payment processors killed that attempt of recovery from the first low at $542.
To conclude XBT/USD remains in a corrective phase inside a long term bull market, the rebounce might extend up to $815 where there is the ALMA moving average to act as resistance level.