Author Archives: Rob Moreno

Bitcoin – The Chart Pattern Targets $70,000

Whatever you want to call Bitcoin, a digital currency, a store of value, or a separate asset class of its own, it charts like an equity. It goes through periods of consolidation followed by rally periods. This price action is a function of investor interest and sentiment. The more interest in a stock, the more volume, and the better it charts. That’s why I disagree with those who say that volume analysis is dead.

I look at volume the same way mathematicians look at the “law of large numbers”. The greater the number of participants that are involved in the pricing of a stock, the better the quality of information that is revealed in the charts. Recent institutional interest in Bitcoin has increased overall volume and consequently the price patterns, in my opinion, chart with more structure and consequently more reliability. Specifically, price has traded around well-defined technical levels on the daily chart. Let’s take a look.

The daily chart shows Bitcoin moving higher this year. In the process it has gone through two periods of horizontal consolidation that have similar characteristics. The first played out in the first five weeks of the year. Bitcoin began the period by trading up to an early high in the first two weeks of January, then retraced that early move in the second half of the month. It found support at the 50 day moving average at the $30,000 level. Then it jumped back up to its old high in the $42,00 area which was prior resistance. As the rebound move off the low was underway the Relative strength Index crossed over the 21 day moving average of the index. It eventually eclipsed the 50 center line level. At the same time, the Chaikin Oscillator, a measure of price momentum, crossed above its 21 period moving average. A large white candle ultimately took Bitcoin through $42,000 resistance and signaled the start of a repeating process.

The second Bitcoin channel began like the first with an early rally up to its eventual channel high, this time situated at the $57,500 level. This second rally run was nearly identical in price range to the first rally range. It was a move of approximately $13,500. When the second target priced was reached, Bitcoin’s price fell back down to support, again, near its 50 day moving average. The bounce that followed saw bullish crossovers on the RSI and Chaikin Oscillator like the the crossovers on these indicators in the first rally. Bitcoin’s price moved back up to its previous high at the top of the channel around mid-March. This second process of rally that defines the range, a retracement, and then bounce back up to the old high, took exactly the same number of weeks as the first series. So, the price range was basically the same and the time for the process to play out was basically the same. This reflects similarity in both time and price.

Now Bitcoin is breaking above the second channel high. The question is will the process repeat a third time? My guess is probably not as precisely as the earlier patterns. But there is a good chance that the measured move off the second channel will be met after some backing-and-filling. That is a target price of about $70,400. The institutional interest and the current move over $60,000 has got to have converted many traders into HODLers and many skeptics into believers. Bitcoin has become a force to be reckoned with and however you define the force, it is powering price from the lower left of the chart to the upper right.

Ten Tradable Stock Charts with Positive Price and Money Flow Momentum

I scan primarily for stocks with a combination of positive price momentum as measured by the Relative Strength Index (RSI) and positive money flow momentum as suggested by the Chaikin Oscillator. You can scroll through the “Chart School Technical Indicator” section of Stockcharts.com for information on these two indicators. Then from that list I drill down and pick out stocks with strong positive candles that appear to be moving out or preparing to move out of consolidation or base patterns. These are usually safe and profitable trading candidates.
However, the price action over the last week has been erratic to say the least. So use caution when trading, keep stops tight, and follow your discipline.

Here are some candidates for Monday:

Bitcoin – This Chart Pattern Suggests 20% More Upside and a New All-Time High

A bullish triangle pattern formed on the Bitcoin chart last month. It signaled a pause in the long term uptrend and the beginning of a consolidation phase. This month Bitcoin is breaking out of the triangle consolidation and is moving higher.

Follow-through price action is suggested by taking the height of the triangle pattern and adding it to the breakout point. This measured move targeted about a 30% move higher. Bitcoin is up 10% since the breakout and has the potential for 20% more upside from its current level.

Bitcoin’s breakout was initiated off a small base just above the 50 day moving average. The average has been steadily rising, tracking from the lower left of the chart to the upper right. Stochastics has crossed above its centerline reflecting improving price momentum. On balance volume is back on the rise and above its 21 period signal average. The combination of positive price action and money flow, and the strong bounce off the 50 day average is a very bullish combination.

If Bitcoin is able to to achieve the measured move target price it would also make a new all-time high. At this point, it is likely that it would begin constructing a series of higher highs and higher lows. This would mark the start of the second phase of its primary uptrend.

Five Stocks Making Bullish Morningstar Reversal Patterns

One of the most watched for candlestick formations is the morningstar pattern. It is a three-day series of candlesticks that suggest the end of a down trend and a reversal to the upside. The first component of the pattern is a large dark down-day candle with the close near the low of the day. It is followed by a doji-like candle. A doji is a candle with a very narrow opening and closing range, meaning that the close is at the same level as the open. The morningstar is completed by a large up-day candle with the close near the high of the session.

The implication of the three-day pattern is represented visually by the price action. It is simple: bearishness, followed by indecision in the doji, and finally bullishness. A clear visual of the transition in investor sentiment.

Friday’s open looks a little weak so remember all technical patterns require confirmation and a close below the doji low negates the bullishness of the pattern. That said, here are five morningstar set-ups:

SPC Commerce: The Cycle Of Higher Highs Continues

SPC Commerce (SPSC) is a cloud-based supply chain and logistics firm. The stock price has been making a series of higher highs and higher lows since September last year. It has established a strong uptrend line above the rising 50 day moving average. Chaikin money flow is in positive territory and the relative strength index is above its center line. These readings reflect positive price and money flow momentum. There is another bullish indication that at first glance is not as evident.

During SPSC’s four month run the highs it made in September, October, December, and January all follow 29 day cycles. That is, approximately every 29 trading days a high in the cycle of higher highs was established marking the end of one cycle and the beginning of another cycle. The most recent low was made on January 14 last week and a continuation of the 29 day cycle suggests that the next high will be made on February 22.

There is an old technical saw that says something along the lines that once a cycle pattern is recognized, it fails. That remains to be seen but ultimately the trend continues or ends based upon the integrity of the simple red uptrend line. If it continues to hold the trend is intact and if it is broken the trend is considered broken. The bottom line at this point in price and time, however, is that SPSC is in a primary uptrend and the technical picture is bullish.

(Picture courtesy of: https://valuestockguide.com/)

Bitcoin – Has Reached A Technical Measured Move Price Target – Time To Book Some Profits?

Bitcoin (BTC/USD) broke out of an inverse head and shoulders pattern in June on the weekly chart this year. The neckline of the pattern at the time was intersecting with the downtrend line of a three year triangle pattern. This multi-year triangle pattern projected an upside measured move price target of around $29,000 or roughly a 190% gain. The move is calculated by taking the height of the triangle and adding it to the breakout point. It seemed an ambitious goal. I always question the reliability of such large patterns but this triangle had three data points on the support line, and three on the resistance line. They clearly defined the pattern but while a clearly defined pattern is one thing, reaching a very large price projection is another.

In the last half of 2020 Bitcoin rallied and rallied hard. It has now reached the $29,000 triangle price projection. In fact, Bitcoin is up over 300% since the start of the year. So, the question is: do you trust the pattern and its achievement and take profits, or do you see better things for Bitcoin in the new year and HODL on? There are a number of individual factors that come in to play. Traders are sometimes lumped into one category but we are all different with different trading requirements and personal goals. I always see the middle of the road as a good option. Take some profits. If you own a bunch of or just several Bitcoins then take some profits. It just seems like a logical option at a logical price level.

The Amazon Wedge Pattern – A New Tool To Confirm A Breakout Or Breakdown

Since early September many of the large cap tech names have been moving basically sideways. Amazon (AMZN) shares are a perfect example. They have been headed right on the chart in an increasingly tight series of lower highs and higher lows. The price action formed a symmetrical triangle or wedge pattern on the daily chart. To be more exact the pattern is called a rising wedge because the consolidation came after the uptrend that began earlier this year.

Note that Amazon’s 50 day moving average runs right through the middle of the wedge pattern (dashed red line). On this chart, I reset the Bollinger bands indicator to use that 50 day moving average as its centerline. Normal Bollinger bands are constructed two standard deviations around the 20 day average. We have changed the centerline average. The outer bands of this 50 day average hybrid remain the usual two standard deviations above and below the average. With the 50 day average moving nearly horizontally the two standard deviation bands have marked the most volatile moves away from the average and helped to define the triangle.

These modified Bollinger band limits may help to confirm an ultimate breakout or breakdown in Amazon’s wedge pattern.

The Market Has Reached An Important Fibonacci Way-Point

The month of November was been a positive one for the broader market, but it was also one that sent a number of mixed signals. The first week saw a sharp jump in the indices followed by a gap even higher to start the second week. But that gap-up day turned decidedly negative by the end of the trading session. We wrote this article about the negativity of the daily candles. The market dipped the following day but then continued on its upward path. One week later a bearish eveningstar top formed on the daily index charts. We highlighted that reversal formation and once again, the indices dipped briefly and then made new highs.

The point is that, as always, the market sends false signals as it does its best to prevent traders from divining its movements. That brings us to todays commentary. It is simple, we have reached an important point in the Fibonacci time sequence when measured off the 2009 low. If we begin measuring the fabled sequence off the low made in 2009 on the weekly charts, we find that we are 233 weeks from that point. That is the 13th Fibonacci time zone. (for more information on Fibonacci measurements this is just one of many resources online.)

At this point it is impossible to say what reaching this Fibonacci way-point means for the market. Like all technical trading tools it must be followed by a period of confirmation. In most cases, the more esoteric the trading tool the less likely, in our opinion, of any meaningful affect on the market. That said it is important to be aware of all the signals the market sends, and to factor them in to your trading plan.