Market Outlook #106 (4th January 2021)
Hello, and welcome to the free edition of the 106th Market Outlook.
In these free versions of the Outlook, I provide my analysis on Bitcoin and Ethereum.
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Market Cap: $557.475bn
Thoughts: Firstly, I’d like to say that it seems I need to take more holidays, because prior to doing so just a couple of weeks ago Bitcoin was traded a little under $20,000, with many of us expecting a period of consolidation before a breakout above the all-time high. Instead, I returned to price being over 50% higher than when I left it. What an end to 2020 and what a start for 2021.
Beginning with the monthly chart, we can see that prior to the breakout above the all-time high, November 2020 closed out right at $19,900 with no wick, which was our first clue that December would at the very least see a wick above the high before price decided which way it wanted to go. December undoubtedly blew past all of our expectations, with price eventually closing 2020 around $29,000 on higher volume than November. If we look back at the price-history since 2015, we see several four-month periods in which there were no red candles and 2 five-month periods; as such, it is entirely within the realms of possibility that we still have up to 7 more weeks to rally before we take a break.
However, if we turn to the weekly, we can see that price has blown straight through the 1.618 extension of the bear market and found resistance at the 200% extension. As I mentioned on Twitter a couple of days ago, price did precisely the same thing in the previous cycle, except that it extended into the 2.618 extension at $3,000 before it found any meaningful resistance and subsequently dumped 38%. If we are to expect price to continue rallying for at least the rest of January and potentially February, that 2.618 extension would come in around $46,700, which, as it happens, would put Bitcoin at around one trillion dollars in market capitalisation. That is an important figure at a historically relevant technical extension. As such, I would not be surprised to see price push up over the coming weeks for that level before we see the significant dip that many have been waiting for (or at least anticipating since price broke above $13,900 back in early November).
Below, I have re-printed the chart I published on Twitter depicting this potential path forward, with a 38% dip from $47k taking us back into $29k before continuation.
If we fail to push that high before we dip, I could conceivably see a retest of the previous all-time high at $20,000 occurring, but it would almost inevitably be front-run, as so many on the sidelines will be waiting for that opportunity. In short, the trend is as strong as it has ever been and Bitcoin looks set to remain in price discovery for at least the first half of 2021.
Turning finally to the daily chart, we can see just how strong that trend has been since October, with small 8-15% dips being greedily absorbed all the way up. In fact, today’s dump from $34,810 into $28k is the largest % dip (~20%) so far since the Q3 2020 consolidation took price from $12500 to $9,700. One thing that does concern me a little is how far we have strayed from the 200-day moving average without retesting it once, which supported the entire trend the previous cycle, but this – as we have seen from Coinbase activity – is unsurprising given the institutional buying that is occurring. It is unlikely that this cycle behaves quite like the previous one in terms of its extreme volatility (there were several 35-40% dips back then on the road to $20k), as there are numerous institutions willing to buy in on much smaller dips. Onwards and upwards for 2021, congratulations on making it.
Price: $954 (0.03167 BTC)
Market Cap: $111.357bn
Thoughts: Well, Ethereum has had an even wilder couple of weeks than Bitcoin in both directions, depending on the pair you’re looking at, with more recent action being some of the wildest I have seen in quite some time.
Looking at ETH/USD, from the weekly we can see that price continued to climb throughout December into yearly close, failing to close below that $552 support area, which ultimately led to last week’s huge push from mid-$600s, carving through the primary resistance area between $790 and $830 like butter and all the way into $960 where it closed at weekly highs; all of this on the highest volume since March capitulation. There could not be a bigger bull signal for the health of the entire market than this, in my opinion. Since, price has pushed all the way into $1166, just 15% shy of a new all-time high against the Dollar. If we drop into the daily, we can see that price has rejected a little from that high but – as of the publication of this post – the pair appears to be heading higher again. Trendline support from late December would see us into the all-time high by February, should it hold if tested, but as long as price holds above $830 I am expecting outperformance by ETH. And that is because of the reversals we have seen in ETH/BTC.
If we look at ETH/BTC on the weekly, at the moment it looks like we have printed a huge bear trap as price broke down below channel support and horizontal support at 0.0263 before dumping deeper into the 0.023 area that became the base in December 2017. From here, we have seen the entire dump out of the channel retraced, with price closing back inside it last week on strong volume and now wrestling with the local pivot at 0.0311. Everything becomes clearer when we look at the daily, where we can see the loss of the trendline support leading to the initial dump into 0.023 on low volume, followed by a strong buy-back on higher volume into the 360-day moving average, which many may have been duped into thinking was the bottom. However, price failed here, trapping early buyers and pushing back into 0.023 for a second test, which held very well indeed and sent the pair catapulting higher in one of the most ridiculous daily ranges we’ve seen for ETH/BTC. This day drove price from 0.023 back into the channel, closing well above the 360-day moving average and turning daily market structure bullish; again, on higher volume than the previous buy-back that failed. Since, price has rallied higher still, pushing all the way into 0.035 but rejecting there and now trading back at 0.0317, which is above the 200dMA and the pivot. I would like to see the pair close above both these levels, confirming the bear trap and likely continuation of this channel over the coming weeks into the 2020 high at 0.0405. I would turn bearish on Ethereum and the altcoin market in general if we were to push back below the 360dMA and 0.0263 again from here.
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