Definition for Capitulation:

When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling. 

The term is a derived from a military term which refers to surrender and it is exactly what happened here, sharp decline at BTCchina followed by europeans this morning. I am watching carefully the VWAP first negative deviation line located at $380, so far the bottom at Bitstamp has been at $382.

Regarding my open trade I refuse to sell in the middle of a panic selling also because the daily RSI is almost at zero, totally oversold. I think there will be a strong reaction once the panic is gone and i need this rebounce to close this trade limiting damage as much as possible.
As usual time will tell.

This is the daily chart since November when the strong rally started . Again the VWAP average acted as important support during the strong drop from the secondary top ($980) of the first rebounce ($542->$980) .  Today BTC/USD reacted a bit from the VWAP after the yesterday low of $612.

I think that now we are at a critical turning point, if the market continues to fall below the VWAP then it is a strong confirmation that a new bear market has probably started, with a final bottom around $250-300 in February or March 2014.

At the moment BTC/USD  is still holding above the midpoint ($ 650) of the last rally and the daily RSI is again oversold, there is also a small RSI bullish divergence with the bottom of last December 7, all elements that let me think of the possibility to see a reaction up to $780-$800 as long as it stays above the support area ($630-$650).

The trade that I opened yesterday at $ 676 is very risky, it could also end up with a substantial loss if the market is going to break decisively the VWAP around $630. If you are averse to taking big risks I advise you to stay out from the market at the moment till it will finally decide which direction to take.

This is the chart of the last 50 days , since the first days of November when the big rally started . We see immediately that the average VWAP acted as important support during the fast fall from $1,160 . The same oscillator i use for the short term updates can be applied on a daily time frime, i have shown in the graph two short signals , the first of which did not work because when the RSI is saturated it  will always signal the opening of a short positions at the first weak bar of an uptrend . You should always try to have a general picture of the situation, if the average VWAP is in an uptrend is always dangerous to follow the bearish signals from an oscillator such as RSI, you have to wait an indication of weakness in the market observing also the volume activity. After  the second sell signal shown in the graph the market has made a double top and then began to descend showing weakness and confirming the sell signal; that could be the time to open short positions , it was December 6 , and the price was about $ 850 . At that time I hesitated to sell and i closed my short-term trade shortly after  at $ 724, after which i have been criticized by many of you. It is true , i could have sold before at a higher price or not sell at all but i have had a good profit and it’s ok; i’m still in for the long term, and as an early adopter (i’m here since late 2010) i’m holding a decent quantity of bitcoins.

Price is holding above the midpoint ($ 650) of the last rally and it is moving upward towards the 2nd deviation line of the VWAP, located at the same level of the recent double top. There will be probably a correction before moving above the all time high at $1163, that correction could be a nice buying opportunity for who is looking for a good moment to buy.

The target for the next top could be around 1400$, third deviation line of current VWAP.

I enclose here on the left the weekly chart of the BTCchina exchange of the last 6 months, converted from CNY to USD for your convenience. On this chart i have highlighted how the break of resistance at $ 135 has been followed by a strong rally all the way up to 1240$. Analyzing the net volumes we can see that this week is the first with negative volume activity and could be an early sign of the weakening of the trend in progress.
I think that the ALMA moving average should provide some support around $ 680, also with the formulas i use to calculate weekly and monthly price range i have the same value, around $700 as support for December.
I think that bitcoin will remain in a bullish stance as long as it stays above $ 700, if i see a further drop under 700$ with an increasing negative net volume activity then i’ll probably close my position opened in late August at 140$.

I know that there are out there scared or nervous investors because of the recent insane rally but i think that bitcoin is something new and it can’t be compared too much with other conventional assets (gold, stocks, bonds..) so because of a 1000% move from 120$ to 1200$ it doesn’t mean that it’s all over yet. I’m not scared to hold my long position if i consider the true potential of this new tech sector: cryptocurrencies.

We are at 1k usd but it’s not even yet started with institutional investors still at the window observing bitcoin, i can say this for sure because i’ve contacts in Schroeder, a global asset manager company, and they are monitoring Bitcoin very carefully.

Bull! Bull! Bull! BUY BUY BUY! Yes i know you are reading this all the time on many bitcoin related forums where there is the perma-bull or his alter ego “the perma-bearish guy” crying all the time that we are in a bubble.
Well, personally i consider a stock or whatever you want in a bubble when it is very far away from a long term regression line. What does it mean “very far away”? When the observation  is outside a statistically significant “prediction interval”. In statistical inference, specifically predictive inference, a prediction interval is an estimate of an interval in which future observations will fall, with a certain probability, given what has already been observed. Prediction intervals are often used in regression analisys like the one i’m presenting here.

I drew a straight line on the graph represents the linear regression of the average prices recorded since August 2010. I added a prediction interval represented by the two lines above and below the linear regression. Bitcoin is in a  price bubble whenever it goes above the upper deviation, on the contrary we can talk about prices significantly lower when we are under the line of the lower deviation, but so far it never happened for bitcoin to be so undervalued.

I’ve noticed that most of the time, important price swing are similar in size if we use a logarithmic scale to measure them, i have shown in the  logarithmic graph the major movements of similar size and i used them to project what could be the next important long term top.

It may be noted that the next top might reach the $3600 price level, just above the current forecast that gives us the second deviation line of the linear regression, a perfect top in a buying climax situation which usually creates the market condition for a rapid fall in the price. At the moment to enter “bubble territory” we need to go above the 1100-1200$ price zone, just above the upper deviation line i’ve plotted on the chart. It is interesting also to note that the April 2013 top at 266$ has been under the upper deviation line while the 2011 top at 32$ has been well above and a true bubble which was followed by a bear market that has brought prices down to $ 2 in November 2011.

 

Because this market has been stronger then expected i revised my monthly range forecast to:

• Bitstamp: 450$ – 750$
• BTC-e: 430$ – 770$
• BTCchina: 3270 CNY – 5600 CNY

Strong support is always on the VWAP now at 320$-330$ or 2400 CNY.

 

 

Here is one of the daily bar charts i use to keep track of the current bull market trend. The first thing i notice in this chart is that the BTC/USD is very high and above a rising 200 day moving average (white line) ; a typical bull market configuration. The price is also above its 50 day moving average (red line).

Reactions within a bull market typically take the price below its 50 day moving average and near its 200 day moving average. The July 5 low at 65$ is a good example of a  reaction that terminates at the 200 day moving average and below the 50 day moving average.
The position of the 200 day moving average in this chart give us a reference limit of a correction within an ongoing bull market (now around 120$), so this means that the next important bottom should be at or higher then 120$.

A first possible sign that the bull market is near the end would be a  strong drop below its 200 day moving average followed by a quick rally back to it with a 50 day moving average pointing down. It is not the case here with both averages advancing strongly.

Thinking back to April top at $266 at that time the price was 190 dollars above the 50 days moving average, projecting that situation today we should have a top at about $ 340 ($150 plus $190) which is what i’d like to see: a decisive break of the previous top at $ 266 that will probably attract many sellers.

Instead, a strong move above 350-400 dollars during this month would surprise me confirming the suspect that this market is probably really booming.

BTC/USD is heating up again and trending up nicely during this month, i think that showing you guys a chart covering all this year will help us to understand better where bitcoin is going in the mid-long term.

Bitcoin is near a strong resistance, the long term first deviation line of the VWAP and i think it will be hard to break this level, currently around 134$, but the long term trend is pushing up and eventually in September/October we might see BTC/USD well above 134$. Short Term support is at 115$, that is an intermediate top of June 21, now support.

For the time being i don’t buy, i want to see if there is enough fuel in the tank to pass 134$.

As a side note, i’m not much happy of the large spread that there is between Mtgox and Bistamp, it’s probably related to withdrawal issues not yet resolved with Mtgox. Overall this is not good and it is not excluded the risk to collapse from panic withdrawals with the consequence of a flash crash. If MtGox is going to collapse it would be very bad for bitcoin, at least in the short term. By then, hopefully new and better exchanges should arise.

BTC/USD fell under a mid term VWAP, at this point it is pretty obvious that bitcoin is entering in a bear market but i think it will not repeat the extreme drop seen in 2011 (as i stated in a previous update such a drop will mean a bottom around 18$).

Abundance of mined bitcoin are flooding the market and there is not enough supply to stay above the VWAP (now at 97$). A positive aspect is that at least the VWAP is not trending lower but it’s flat at the moment. The first decent support is at the first deviation line, around 60$ and i don’t expect the price to fall under it this July. Resistance in the short term is now 90$, that it was previous support in my last short term update. To conclude, i do not recommend to buy at the moment; eventually at 60$ if the market rebounce i might decide to open a long position, with extreme caution because  grasping a falling knife is always a risky business.

For the first time i show here a monthly chart, now that we have enough data since July 2010 when MtGox opened its “doors”. After a 9 months strong advance from 0.06$ to 31.91$ BTC/USD entered in a bear market that lasted 6 months down to 1.99$ in November 2011, since then we have seen a very strong rally and two accumulation phases spent at 5$ and 10-13$ up to January 2013. This year behaviour has been extraordinary with prices advancing from 13$ all the way up to 266$ that i consider it an  important top like the one seen in 2011. I don’t think that this year BTC/USD will go above 266$ again, what i expect now it is a mild correction.
Keep in mind that despite the massive negative money flow seen during the drop and record volume bitcoin is still well above 100$,because of this interesting divergence i don’t expect the same extreme correction happened in 2011; i’m more for a slow retracement with a final bottom above the 32$ 2011 top, and even above the recent 50$ double bottom.

Apart any considerations about volume activity there is also the fact that until mining power or network speed will not give signs of slowing down the price will not come down easily. In 2011 only in august the network speed started to fall and bitcoin crashed from 14$ to 2$ and even if now the network speed might slowdown and retrace a bit it is not excluded a flat phase of this market instead of a steep fall. It is interesting also that there are too many players out there waiting for a big drop to 30$ but the market isn’t here to satisfy all their desires and most of the time it follows its path and not what the masses expect.

Unlikely that there will be a repetition of 2011 “pump and dump” pattern but, just for your curiosity, it is easy to forecast the bottom, using a logarithmic scale and projecting the same extreme drop from this year top at 266$ the bottom should be around 18$.

The head and shoulder pattern is one of the most common reversal formation, while it is preferable that the left and right shoulders be symmetrical, it is not an absolute requirement, in fact the slope of the neckline (pointed out in the attached left chart, click to enlarge it)  will affect the pattern’s degree of bearishness; a downward slope is more bearish than an upward slope, in this particular case the slope is telling us that it’s not much bearish and indeed the market bottomed out at 79$ near the level that i indicated as a potential support in one of my previous update and exactly at the long term VWAP (computed using last 3 months of data) without a severe crash under 50$.
This pattern helped me in the decision to close my long term trade 5 days ago at 128$.

Looking the big picture i think that this market it’s still bullish in the long term as long as it stays above 80$, another bullish indication is that the recent bottom has been higher then the double bottom made in April, now BTC/USD is approaching the first deviation line at about 130$ and it’s crucial to go above it with a good volume breakout. A failure to conquer the 130$ level would be a first warning of a downside move, probably headed below the recent 79$ bottom.