Market News & Analysis
Is “it” back?
Tony Sycamore April 4, 2019 4:09 PM
The early part of this week was dominated by the news that PMI data in the world’s two largest economies, the U.S. and China had staged unexpected and impressive rebounds, thereby flipping the conversation from one of “synchronised deceleration” to one of “synchronised growth”.
Even for those amongst us who would like to see more evidence to support the upturn in growth theory, it’s difficult to ignore the preliminary signs that fiscal easing in China appears to be taking effect and a better growth trajectory in China should flow through into other economies, including the sick child that is Europe.
Therefore, it was always going to take something quite special to capture the attention of traders pondering just how much further the equity market rally of 2019 could extend. That diversion has come from a rather unexpected source – a stunning one day +20% rally in Bitcoin.
After grabbing headlines in 2017, as Bitcoin rallied from below 1000 to a high of 19666, the cryptocurrency market and Bitcoin has since lost approximately 85% of its value plagued by a long list of concerns. These have included fraud, manipulation, energy use, lack of market size, a lack of regulation, bans by social media giants including Facebook and Google, not to mention the lack of SEC approval to launch a cryptocurrency ETF and no major retailer adding cryptocurrency acceptance. Even one of the very core concepts of cryptocurrency is being debated. As most Bitcoin and cryptocurrencies are owned by a very small number of people, can they really be called decentralised?
That said, those passionate about cryptocurrencies can find a list equally as long, as to why blockchain and cryptocurrencies are here to stay. For example, Spanish banks and even the Australian Stock Exchange, have implemented blockchain technology in their processes.
Where do we sit within the debate? I favour the analogy whereby the current evolution of Crypto is similar to the early days of the Dotcom boom of almost 20 years ago. There will be a handful of cryptocurrencies that will flourish in time, much like E-bay or Amazon have done after the Dotcom apocalypse. More importantly though as a trader, I am constantly scouring charts looking for trading opportunities that combine a strong technical setup with acceptable risk/reward.
With FX markets mostly range bound in recent months, and after seeing little of interest in Bitcoin since the trade setup outlined here in July 2018 https://www.cityindex.com.au/market-analysis/bitcoin-finding-a-base/ Bitcoin again caught my attention 6 weeks ago. More recently we highlighted this setup and our bullish view of Bitcoin in the Week Ahead video here https://www.cityindex.com.au/the-week-ahead/.
The essence of the chart pattern was that Bitcoin was displaying evidence of a rounded bottom/loss of downside momentum on the daily chart as well as bullish divergence as viewed on the RSI. The weekly chart confirmed that at its low point, last December, Bitcoin held the support coming from the 200-week moving average.
Armed with this information we were able to initiate a long Bitcoin trade at an average price of 3925. After reaching the first profit target of 4650 far more quickly than anticipated, I remain core long looking to take profits again on a push towards the next layer of strong resistance between 5750 and 6000.
I intend to keep a final portion of the original position for a move towards 8000. The stop loss on the trade has now been moved higher to 4050. As to whether Bitcoin goes up or down after this point is irrelevant to me as one way or the other, I will be out of the current trade and moved on to the next.
Source Tradingview. The figures stated are as of the 2nd of April 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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