Week #2 - 2023
BIG HEADACHE FOR FED ¦ WHY YOU SHOULD RESIST BUYING ALTS NOW ¦ BITCOIN BOTTOM, IS IT IN?
Welcome to 2023!!
As I write this, risk-on markets experience another round of euphoria after last week’s US employment and ISM data release, probably paired with China’s re-opening optimism. All this led to the stock market securing its first green weekly candle since the end of November and continuing this rally today.
Big Headache for FED
Why is this not a favorable scenario for J Powell and his “friends”? FED members often commented, that the stock market rallying on every remotely dovish statement or as in 2022, on any negative news for US economy that could lead to FED pausing interest rate hikes (eventually cutting once recession would hit hard), is not a reaction they are hoping/expecting, so this current FOMO building up and spreading to crypto is not something they wanted to see.
Last week we had both ADP and NFP numbers higher than consensus, plus unemployment rate dropped to 3.5% from 3.7% while the hourly rate went down (with a lower revision for the previous month), it will still be clear for FED, that labor market is strong enough to withstand more QT and higher interest rates. It feels to me that Wall Street is betting on lower than expected inflation reading on Thursday, thinking it will make FED stop hiking sooner and maybe cut rates in 2023, despite all the hawkish talk JP gave after December’s FOMC meeting.
While I think we are likely to see the experts being right in their estimates this time, with a slightly higher chance of CPI showing under than over the consensus, it will not be enough to convince FED inflation battle is won. Historically the only sure way to bring inflation down fast is through RECESSION. OK, JP is trying to convince everyone there won’t be one or if, a very small nice cuddly one.
JP will get a chance on Tuesday to make some comments during the discussion at the Central Banks symposium in Sweden and I feel he will use that opportunity to re-irate FED’s focus on battling inflation no matter what and possibly criticize the market for the bullish interpretation of last week’s data. If we are heading into recession and pretty much everyone think so, there is no chance last year’s lows on SPX are the bottom of this bear market (unless they keep changing the definition of it and we never ever get one again)
Why You Should Resist Buying Altcoins Now
With all the above in mind, I am not sure I need to go into too much detail on WHY you should not buy into this mini rally, but I will show you a few charts, so you can make up your own mind, whether you are going to resist the FOMO or not.
You might hear tonight or tomorrow, that after such a big run-up on the likes of LIDO, ROUTE, SOL, and few other names that have been under heavy selling pressure recently, you should wait for a pullback and buy. Now that is not entirely bad advice, assuming you are in a bull market or this was an early stage of stronger moves from the bottom, but we are already in an overbought state.
First, let’s look at a daily TOTAL crypto mcap chart as higher timeframes should give us higher or lower confidence in setups on 4h charts I will show later.
For this particular chart, I like to use RSI(11) which works really well with Wave oscillator (most of you will be familiar with my setup by now). You can see that during this bear market anytime RSI hits 70+, it was a clear sign of the current move coming to exhaustion very soon after. Considering Wave oscillator still has some room before hitting levels seen in March and August, I would expect a similar situation as in late October with likely moderate move-up continuing this week fueled by CPI data, to a range of 820-860b (small probability of a spike to 950b if inflation shows significant surprise to the downside).
Now that we know we are very close to this move topping out, let’s zoom in to 4h charts, starting with Bitcoin.
With RSI hitting over 80, Wave oscillator highest since the end of October, and BTC turning down in a key range of 17.3-17.5k, gives me very good confidence that even if there could be one more CPI-driven push-up, this is not the time to buy Bitcoin. If you want to play long, betting on inflation data being low and pushing this rally bit higher, set your LOs around 16.8k.
The above should be enough evidence for most of you to keep you away from giving in to FOMO and spending your crypto allocation all at once, but let’s look at some popular altcoins recently.
LIDO DAO
I know some of you caught that move, so congrats as long as you are taking at least your stake off the table, as I see it exhausting its upward momentum. A whopping 120% this year if you do not count the spike. It is a volatile coin, so likely dropping as fast as it went up once Bitcoin gains some downward momentum. Looking at weekly charts I see it likely coming back to at least 1-1.15$, but if the formation breaks could go much lower, so be careful.
SOLANA
Everyone paying attention to Solana, some want it to the moon immediately, others to drop below 5$, so they can buy and then wait for the moon. It has been heavily shorted in 2022 and still attracts a lot of bears, meaning, most of the time funding rates are heavily negative. This usually means a short squeeze will occur (this was also the case on LIDO though not same scale when it came to negative funding rates) and that what this purely is. I do not think it will go higher than 18-20$ if Bitcoin pushes closer to 18k this week. If you want to speculate as with LDO, try and grab it between 13-14$, but keep a tight stop loss, JP’s speech tomorrow might as well crush Solana’s dreams of the moon and send it back under 10$.
NEAR
Near has been under selling pressure since FTX/Alameda collapse, so I am sure holders welcomed this moderate gain of 38% this year. The bad news is a clean bearish divergence has already been confirmed, so I would not expect much upside from here. Again if you want to play long into CPI, I would place buy orders between 1.48-1.55$.
In general I don’t recommend any speculative trades this week, if you do remember to secure your trades if already in profit prior to the news release on Thursday and exit if it has already gone the wrong way as the move post CPI, could be quite volatile.
Simple oscillators like those I am using can save you from buying at the likely top, but also look at what crypto influencers are doing. Coming out of the woodwork with bullish vids, a 100x move coming, etc. is a sure sign things are at least going to calm down very soon.
Bitcoin Bottom Is It In?
The ultimate question everyone want to know the answer to since early 2022. Most analysts, including me, look back to past BTC cycles and considering we are in a bear market to 2015 and 2018 capitulation events. You know I like to support my TA with On-chain analysis which served me well in the past. As I have recently become a verified CryptoQuant Author, I spend a little bit more time looking at on-chain data.
In one of my recent posts, you can read by clicking on the button below, analyzing the S2F Ratio Reversion chart I stumbled potentially upon a sign that Bitcoin is actually still quite far off final capitulation in terms of time span, even if it might not be that far off the actual bottom price range.
I won’t be repeating what I wrote in the above Quicktake post, so I want to show you what else could support this theory that we could still be a good few months away from final capitulation (macro outlook aside, as I think we know it’s grim).
Looking at Bitcoin’s dominance (BTC.D) in 2018 bear market, it was clear that once the realization came to retail traders, this is indeed a bear market, and similar to this time, many rug pulls, scams, etc. surfaced, investors steered away from highly risky altcoins either into BTC or cash. That behavior in turn drives BTC.D from bull cycle lows (under 40%) to 50%+ until the next bull run starts.
This is what we had in 2018, with a clear last attempt on altcoins in late April and a smaller failed one in early June. After that, the true destruction of demand for shitcoins was in full swing with BTC.D hitting over 60%.
I do not believe we are to see Bitcoin’s dominance hitting 60% ever again, considering digital assets have a lot of interest from larger investors and funds, but I would still expect to see that loss of hope from retail, that another 20x pump is going to happen “tomorrow”.
As you can see, we are heading towards 40% dominance yet again and what is driving this mini rally isn’t Bitcoin, so in my opinion, until we stop having shitcoin-driven rallies, this bear market will continue until demand is destroyed (it is also what FED want in the stock market) and while prices go down Bitcoin will re-gain its dominance closer towards 50% of the market.
I’ve marked similar areas on the chart where dominance was on a downward approach and the same level as we are now. In both cases, we’ve seen some more upside before a very strong sell-off shortly after. The closer BTC.D will get to 40% this week the more likely this scenario to repeat until eventually “we” give up on buying, in most cases highly overvalued or absolutely useless altcoins, that crypto influencers try to convince you are the next shiny nugget going to 1000x
To sum up
DO NOT BUY altcoins as you are only likely to lose more money
If CPI print is lower across the board (Core and Headling both YoY and MoM) we will see more upside in stock market and crypto
The upper likely move on BTC will stall around 18.5, with a small chance of reaching 20.5k, depending also on the starting point before the news
Look out for price action around Jerome Powell’s speech on Tuesday, as it could move the markets down
As I was showing a few days ago on my Twitter account, the stock market is right at the usual point for bearish continuation, if CPI does not show lower than consensus we are going back down fast
Thank you for reading, make sure to follow me on Twitter for more frequent updates, and STAY SAFE.