We’ve charted the decline in the price of Bitcoin since the beginning of the year, and it has not been pretty. But over the last several days some very constructive technical work has been accomplished on the 30 minute chart, which could suggest that the trend might be at an end.
After the “flash crash” low was taken out so decisively it was unclear where the crypto-currency might find support on this particular time frame. To be sure the 9,200 level had no particular technical significance, but that is where Bitcoin chose to bounce. The subsequent oscillation around the “flash crash” support-turned-resistance level formed the right shoulder of an inverse head and shoulders pattern. This bullish reversal pattern was the first sign that the decline may be abating and a base could be forming.
The second consolidation clue was the horizontal channel pattern that formed over the last two days. Today’s early penetration of that channel resistance level has taken the price of Bitcoin to an important intersection of trend line resistance in the 12,800 area. This zone of resistance includes the long term (long term on this time frame) downtrend line that is drawn off the highs of the month.
A sustained move above this key trend line would be the final phase of the basing process and considered technical confirmation of a shift in the direction of the trend.
Chipotle Mexican Grill (CMG) lost 65% of its value from its high in 2015 to its low at the end of last year. Over the last four months it has been attempting to hold above the low and in the process has formed an inverse head and shoulders pattern.
This is not the first time that Chipotle has attempted to form a base and reverse its long term decline, but this is the first time that two key technical indicators are also turning up in unison.
The weekly chart shows the moving average convergence/divergence oscillator making a bullish crossover in December and continuing to track higher. This is a sign of improving trend and price momentum. In addition, the Chaikin money flow indicator has moved into positive territory, suggesting the stock is starting to see some buying interest.
The head and shoulders formation can be seen in more detail on the daily chart. Since it began forming, the MacD has been moving higher in bullish divergence to the stock price. This week Chaikin money flow has advanced above its center line which is short term confirmation of the longer term trend.
And this week Chipotle has moved over the neckline resistance level of the H&S pattern. The measured move from a successful breakout is calculated by taking the height of the formation and adding it to the neckline. It projects up and through the 200 day moving average. This is the first time that has happened in a year.
Most economists polled by the Wall Street Journal expect that interest rates are headed higher this year and into next year.
The economists expected the central bank to raise rates three times this year and twice in 2019, which is consistent with the Federal Reserve’s own projections.
The ProShares UltraShort 7-10 Year Treasury ETF (PST) seeks daily investment results that correspond to two times the inverse of the daily performance of the U.S. Treasury 7-10 Year Bond Index. Unlike the bonds themselves, it goes up when short term rates move higher.
The weekly chart shows the fund breaking above the two year downtrend line of a rising triangle consolidation pattern.
Included on the chart is the the ProShares UltraShort 20+ Year Treasury ETF (TBT), and its results correspond to two times the inverse of the daily performance of the U.S. Treasury 20+ Year Bond Index. It goes up when long term rates are moving higher.
It looks like the TBT has formed a floor in the $33 area and is preparing to break above its long term downtrend line.
A transition is underway in the long term direction of interest rates, and that could be a drag on stock prices. These inverse funds offer one way to profit from a new direction in Federal Reserve policy.
It seemed like Bitcoin had a rendezvous with its “flash crash” low.
It began to feel inevitable as the series of lower highs on the 30 minute chart persisted. There were short term bounces at what technicians would call appropriate support levels along the way, but they continued to fail.
Late yesterday afternoon a waterfall decline began that took the price of Bitcoin back to its low of the year. Earlier in the month it looked like a double bottom had formed at this $12,800 level, and there was a slight pause in the drop and some consolidation there. But a bear flag formed and the subsequent breakdown from that pattern propelled price back down to $11,181.
It was done.
There has been a sharp bounce back up to the $12,500 level followed by a higher low, but there is a large amount of technical work to be done if Bitcoin were to stabilize here and begin to reverse its downtrend. A break below the crash low brings into play levels of support that go back a long way and require the use of the daily chart.
Facebook (FB) opened in the regular trading session this morning by moving sharply lower. Shares began the day right about the same level they began trading at beginning of the year.
The reason for the drop in price was the company’s announcement of changes to its news-feed. These changes they say, are designed to encourage more meaningful personal interactions. Translation: fewer ads and more cat pictures from your second cousin. This attempt to encourage more meaningful social interaction between people was not appreciated by the machines that trade Facebook stock.
The gap lower this morning, broke through the rising 50 day moving average before finding support just above a horizontal trend line at the $177 level. The move was powered by a surge in negative volume. At this point in the trading day Facebook has recaptured its 50 day average and is near its highs.
It remains to be seen how this new strategy will affect the company’s bottom line, but the levels of support and resistance are well-defined on the daily chart.
Let’s see how those technical levels interact with the stock price.
The horizontal support line and the downtrend line we highlighted earlier today, continue to contain the price action on the 30 minute Bitcoin chart. (follow @rightviewrob on Twitter for updates)
As a result a declining triangle pattern has formed above the support line. Price range is compressing and periods of diminishing volatility like this, are often followed by volatile moves.
If this particular consolidation resolves with a breakout, then the pattern’s projected measured move would take the price of a Bitcoin back up to the $15,500 area.
On the other hand, if there is a triangle breakdown the downside measured move could potentially penetrate the “flash crash” low.
Many of the consumer staples sector stocks have not participated in the strength in the broader market this week. In fact, in today’s trading several moved below key levels of technical trend line support, closing near their lows of the session.
These well-defined early breakdowns offer good risk/reward entry points.
But short positions are particularly speculative and always require a disciplined trailing buy-to-cover stop.
It is always a great experience to work with Jim Cramer and his team on an “Off the Charts” segment of Mad Money. On last last night’s show the big three gaming stock, Activision Blizzard (ATVI), Take-Two Interactive (TTWO), and Electronic Arts (EA) were featured and it looks like they have much more upside in 2018.
Video game stocks have more room to run from CNBC.
Here’s the CNBC recap and the TheStreet.com recap.
Apple (AAPL) is having trouble breaking above the $176 level and as a result, it is the worst performer in the extended FAANG group (Facebook, Amazon, Apple, Netflix, and Alphabet) over the last thirty days.
While the other stocks in the acronym have moved above their November or December highs this month, Apple has remained locked in a horizontal channel pattern for the last two months.
Over the last two weeks, they moved higher along with their rising 50 day moving average, returning to the upper end of the sideways channel and closing a small downside gap.
While this is positive price action, the moving average convergence/divergence momentum oscillator has been in bearish divergence over the two month consolidation period. The Chaikin money flow indicator has been declining, confirming the underlying weakness in the stock price and suggesting that buyin interest is also waning.
The integrity of the very clearly defined zones of support and resistance (red areas on the chart) should determine the intermediate term direction of Apple stock.
Since its late December low, the rally in the price of Bitcoin has been impressive. It moved up from a nadir of nearly $12,000 to a recent high of $17,200. That’s a 43% rally which, of course in crypto-currency terms, is a mild bounce.
The run has seen a series of advances followed by periods of lateral channel consolidations. Despite the unusual percentage gain for such a short time, the moves higher and then the digestion of those gains is a normal and healthy procedure.
A very interesting development in this process has been the the fact that the support and resistance levels that the channel consolidation periods have defined, coordinate very well with the Fibonacci retracements levels measured off December’s historic high and its “flash crash” low. These retracement levels are based on the “golden ratio” and the famous Fibonacci number series, popular with Mother Nature and stock technicians and chartists.
The asterisks on the 30 minute Bitcoin chart mark the Fibonacci levels of the December range, and they also delineate the borders of the three major channel consolidations during the period. Also, the height of these individual channels has measured the move that followed that particular channel breakout.
A breakout from Bitcoin’s most recent horizontal channel consolidation projects a target price objective in the $18,000 area, and a return to the final Fibonacci retracement level. This was a key December support and resistance zone.
That level might well be a psychological barrier where, if penetrated, the attractive properties of an old all-time high and a large round number takes over. Then the well-defined Bitcoin advance may be replaced by more customary manic volatility.