Why I'm still long as a default position: fib levels and the uptrend so farOkay, time for another "serious" TA post, after a bit of a break. I've been asked a few times if, and why, I'm still long currently, despite the recent price action and uncertainty about the near future.
I should mention that I did make a small number of trades during this swing (since the June 1 peak), but they were all purely momentum based, when it became very clear that a move down was picking up speed. However, perhaps
the most important question for a swing trader is "what is your default position", i.e. whether you take profits in USD or BTC (in this market). For me, that default position is BTC currently, and I'll explain why in a moment.
First, though, let me clearly say what I am NOT going to argue for: a meteoric rise in the near future. Here's what I wrote (a bit too angrily maybe) in another thread, where someone posted another one of those "$10,000 USD next year" predictions:
Stop with the TO DA MOON projection bullshit, bulls. That's my opinion.
My patience is starting to wear thin.
2014 is starting to look like 2011/2012: time for the network to grow, services to develop, the community to grow, etc. And price, to, well, stagnate a bit.
Don't think that's true? I don't give a fuck, we all make our bets accordingly (some sold, sold are holding, some are buying more), but whatever you decided to do, the desperate repetition of those "$10,000/$100,000 next month/year" threads is getting ridiculous.
If price really goes up that much, that fast, we will notice, I'm sure. Until then, work to improve the network in your own ways.
(And I realize that this is what Blitz has been saying for close to 6 months now. Good guy.)
Note please: I don't completely rule out another parabolic rally later this year, but I'm far from sure it'll happen. In fact, I'm slightly more inclined to think the next ATH rally will only happen next year at the earliest, and probably not to a "moon" number like $10k, but more likely a doubling or so of the previous ATH, which would still be extremely impressive.
But none of that matters right now. I'm simply trying to figure out if, right now, it makes sense to sell (to protect the USD value of your position), or whether the mid term direction is more likely to be up.
* * *
My analysis is based on the following two premises. You don't need to agree with them, but if you don't, you probably won't see much value in the argument I'm going to present.
1) $340 was, most likely, the capitulation bottom of the 2013/2014 bear market.
2) The period following the bear market, now, will be somewhat "reluctant" in moving up, with long periods of stagnation and possibly some serious setbacks.
I have argued previously why I believe 1) holds, won't repeat that now. I believe point 2) holds mainly for the following reasons: a) because the bear market was a lot more crushing than for example the short recovery period after the April 2013 ATH, b) because there were a few seriously disturbing news/developments that the market is still recovering from, mainly: mtgox, and uncertainty about China, and finally c) because no new "market explosion event" has taken place yet, that brings in an abundance of new fiat.
Examples of point c) are for example China entering the market big time in the 2nd half of 2013. What an event like that could look like now is, for example, the approval and listing of one of the ETFs, a new "serious" exchange backed by "old money" that brings in new types of investors, or a large enough country suddenly developing a taste for investing and/or using Bitcoin.
Those are the premises, on which my following technical arguments rest. In other words, I assume, from point 1), that we are in principle moving upwards, from point 2) that this is only going to proceed slowly.
Fib comparison #1The longer historical comparison.
First graph shows the immediate recovery after the extremely crushing 2011 bear market. After the bottom of around $2, the first swing up ended at around $7. Then followed a retracement of that swing to 50%, where it stayed a long time, with and additional spike even deeper to the 62% fib level.
Next, the recovery after the July 2013 bottom at $63. Swing up to $100, followed by retracement to, you guessed it, 50%, and a spike to 62%. Now, to be clear: the recovery in mid 2013 was a lot smoother than what I expect to see now, but at least in terms of fib levels, we tested those two then as well.
Finally, our current view. The situation looks a lot different because of the intermediate period (after the assumed $340 bottom) in May, but from my perspective, what matters is how far we have progressed from that bottom. And as you can see, in today's situation we're not even near a 50%, let alone a 62% retracement. Which is why I'm not really worried yet.
Fib comparison #2The next is pretty much a fractal view of the above. Let's compare the May consolidation period to the current one. After the $548 peak, most of May 2014 saw a period mostly of stagnation, that touched (surprise) 50% and 62% fib levels again.
Which is precisely where we are now again, in terms of fib levels.
The recovery so farHere's another way to look at it. The following graph is a series of the intermediate highs and lows so far. Since the $340 bottom, we can see that a series of higher highs and higher lows is forming, in other words, an uptrend.
Marked in yellow is the range that could invalidate that picture. If price falls below the previous low of $538 on June 14, I won't automatically assume that we're back in a bear market, but it will be a sign for me to start questioning my default position. Should we hit, and break through, ~$530, what matters then is how price behaves afterwards wrt to the fib levels I've mentioned above. But that's another post, should it come to that.
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