Consolidating Trend -- A Page From Arepo's Notes

[arepo]

this is a continuation of a free series that i will be posting from time to time.
last issue: Decision Point! -or- A Page From Arepo's Notes

SO! Let's take a quick look at the present moment on Gox (for all you bitstampers out there, the prices are largely correlated so this analysis applies equally!)


http://s28.postimg.org/fg67oje7h/trendornotrend.png

we've got two possible patterns, one a bearish flag the other a rising wedge (usually bearish), depending on which parts of the data can be considered outliers. for the flag, breakout is in 0.5 - 3 hours, for the wedge, breakout in 1-5 hours. however, there is a case to be made for both bearish and bullish scenarios. this is intended to be an overview and a brief tutorial on how to interpret the various indicators available over at bitcoincharts.com. as always, questions and clarifications are welcome and encouraged!

The Bull Case

===

10-day 2-hour scale @ GOX


http://postimg.org/image/yfzanaxz1/

===

MFI:
an oscillator that incorporates volume
we've touched down onto a strong moving support, marking the third point of contact that describes a robust trendline*, which is very bullish. this suggests that we've reached the bottom of a correction to the trend, and we will break up out of this pattern.
*a line can be drawn through any 2 points so 3 points is the minimum for a robust linear model for channels, trendlines, and bounds for various other patterns.

StochRSI:
a very light oscillator
upwards movement after an overbought period (blue) on this oscillator is bullish. if it continues, we should break up. a reversal in this indicator would be bearish.

CMF:
an price-volume transformation that acts as an oscillator
not only is the CMF strongly positive, a small but robust upwards trend is visible. as long as this trend continues we will stay on track for the mid-term trend.

PVT:
another price-volume transform
same interpretation as the MFI -- trendline intact, also very robust with 4 points of contact.

The Bear Case

===

10-day 2-hour scale @ GOX


http://postimg.org/image/dht4p7y4d/

===

UO:
an oscillator based on moving averages
these data show a retest of an important support, as well as a lower high correlated with the recent peak. very bearish. if the support holds we may see sideways consolidation, but a break under this support would be very bearish.

Mass Index:
volume tracker
this indicator is calibrated to peak during reversals, which are usually periods of high volatility and high volume. the red and blue bounds are critical, intended to show periods during which volume and volatility are significantly higher than during normal trending and consolidating behavior. a short-term peak above this threshold threatens a reversal.

William's:
another light oscillator
in these data we see a broken support, and a consolidation underneath perhaps forming a bearish triangle. if we cannot break above this support, the mid-term trend is likely over.

SlowStoch:
measures the momentum of price movement
similar story here, with a broken support and an even more bearish consolidation. if we cannot break above the 50-line, the trend is over. if we break above the 50-line but consolidate under the old support, we may see sideways consolidation. a break above the old support would be a confirmation of the mid-term trend.

i hope i have given some of you the tools to trade this exciting moment dynamically. here's a great resource that has the actual formulas as well as in-depth explanations/interpretations of the various indicators. keep in mind that the linked site is intended for other markets, and that my own personal interpretations have been tested and calibrated specifically for the bitcoin price function, but the basic interpretational intuitions still apply. good luck!

--arepo

I work diligently in my analysis, and share it with you as I can. If you learn from me, help keep it free!
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[arepo]

price action in the last half hour is beginning to look more and more like a wedge on gox, with bitstamp following suit. since the estimated breakout time lands in the nighttime for most western traders, the breakout paradigm may not materialise on schedule. look for a high-volume movement first thing in the morning to get a directionality signal.

[YoYa]

Arepo, how are you feeling about the over extension on the 1d and 3d charts?

[arepo]

Arepo, how are you feeling about the over extension on the 1d and 3d charts?

on the 1-day scale...

the volume associated with the doji at the peak is a sign of a top, at least for the short term. in the bullish scenario this would mean a descending bullish triangle consolidation with today's candle spanning from the $1000 bottom all the way to the descending upper bound of the triangle. the consolidation would take a few days, and then we would resume the uptrend. it does tell us that we will likely not see $1090 again for 1-2 days.

interestingly enough, the peak could also be a longer-term reversal, which yields the bearish scenario. there is some disagreement right now between mtgox and bitstamp because gox has just now broken above the upper wick of Sunday's tall green candle, suggesting a bullish breakout from the pattern in the OP and a formation of the longer-term, multi-day bullish triangle consolidation scenario i outlined in the previous paragraph. this, however, does not yet rule out a downwards breakout, in part due to the fact that biststamp prices still seem trapped by that same serious resistance ($950), and the actual resistance on gox seems to be at $1045, slightly higher than Sunday's high. if bitstamp can break above the upper wick of Sunday's candle, it will coincide with a breakout up from the pattern in the OP, and would most likely be followed by a multi-day descending triangle formation, which, again, would be bullish.

the only other option, of course, is a downwards breakout from the pattern in the OP followed by a red candle retracing the gains made on Sunday within 2 days.

i'm a little confused right now why gox is banging on its own upper bound ($1045) while bitstamp has detrended almost $25 below its own ($950). the markets seem to be decoupled. probably an artifact of nighttime volume.

--arepo

[rdmk]

arepo, great stuff, always consistent and interesting, as a go player myself with a bg in physics getting into these market metrics I really appreciate it. I'll send you some tips when I can dude.

At the moment the bear case seems stronger to me, the Bollinger Width on the same scale is nose diving and I think a new ATH in the next few days is a stretch, so down. StochRSI is very cool as the second derivative of price but because it multi dips the thresholds so much I wouldn't take it's current state as a bullish signal yet. I'd also hazard a guess that absolute support has risen from 600 to 700 in the last week.

Cheers

[arepo]

arepo, great stuff, always consistent and interesting, as a go player myself with a bg in physics getting into these market metrics I really appreciate it. I'll send you some tips when I can dude.

At the moment the bear case seems stronger to me, the Bollinger Width on the same scale is nose diving and I think a new ATH in the next few days is a stretch, so down. StochRSI is very cool as the second derivative of price but because it multi dips the thresholds so much I wouldn't take it's current state as a bullish signal yet. I'd also hazard a guess that absolute support has risen from 600 to 700 in the last week.

Cheers

thanks for the feedback!

go + physics seems like our interests overlap significantly

anyway, just a point of clarification, a new ATH after a significant period of consolidation is still on the books. this time the bubble was different. sensible double-top instead of a cusp top, the sell-offs were shallower, and the main bulltrap was higher in relation to the lowest support levels. i'm planning on posting a full diagramming after the pattern is over; i'm using the comparisons with the April bubble and many others as part of my resources right now, and try not to share too too much with the forums -- it causes complications

i see what you mean about the stochastic RSI, though, as one interpretation might be that recently visiting the oversold zone after a longer period of being overbought is actually bearish. we shall see

update!

we are breaking out downwards as i type this. however, we're still being held up by the moving support of the uptrend, i.e. breaking into a larger triangle. these consolidation patterns have a tendency to do just that, breaking out and discovering previously invisible supports and resistances within the consolidation channel. of course, we'll need to break through this support, as well, to see a real reversal.

--arepo

[arepo]

the volume of the most recent move down has turned the majority of the 2-hour indicators bearish. i anticipate a retest of the $965/$875 (gox/stamp) low by morning.

[Kramerc]

Thank you for your work, even more insightful than it usually is.

[rdmk]

s'all about natural systems  

what a snap! but yeah def haven't ruled out consolidation yet considering the behaviour of the bubble so far as you said, but it seems like the bubble has a bit left in it. And even though there's a lot of new awareness and money coming in I think most will be waiting to buy lower or when it's a bit more stable. but whatever you never know.

yeah i guess diagrams can be easy to debate, but looking forward to the comparison. I still have a lot to familiarise myself with but i'm interested in trying some numerical analysis in the future if i can find the time. Anyway the next few days should be interesting. It looks like we're already breaking through the 1000 support, china did it with 5600 no problems.

[arepo]

s'all about natural systems  

true that

... I think most will be waiting to buy lower or when it's a bit more stable....

yes, but will anyone be selling? that is the key. if the HODLers hold and the fearful watch, then we will consolidate sideways and not slip into a bear market. the steady underlying buying pressure will buoy us along with the trend, and we will reach Sunday's peak in a couple of days. we need to see some renewed selling pressure today to break us out of this consolidation pattern and into a real mid-term correction.

--arepo

[T.Stuart]

s'all about natural systems  

true that

... I think most will be waiting to buy lower or when it's a bit more stable....

yes, but will anyone be selling? that is the key. if the HODLers hold and the fearful watch, then we will consolidate sideways and not slip into a bear market. the steady underlying buying pressure will buoy us along with the trend, and we will reach Sunday's peak in a couple of days. we need to see some renewed selling pressure today to break us out of this consolidation pattern and into a real mid-term correction bear market for those who want coins!

--arepo

Sorry, couldn't resist! 

[oda.krell]

Interesting situation. Bitstamp looking quite a bit more bearish than mtgox. Both are mostly in a state of suspension though, for now.

Let's assume downward breakout today, or over the next few days. Which to me looks slightly more likely right now than the alternative of resuming the 2 week uptrend... Maybe some price targets? If we do in fact go down with some force, but fin support in the 30d EMA (right now @~830 mtgox) I'd take that as a very strong bullish signal for the near future.

Say we break through it though. We have 2 post-ATH lows, 590 and 460. Obviously, should we fall below 460 all bets are off. Staying above both of them, on the other hand will give some confidence we've seen the capitulation bottom. Not a signal for a big rally, but slowly upwards moving consolidation probably.

In any case, until we actually close under the 6h EMA30, I'm not even going to get active. Not a single downtrend came into motion without that happening first in the last 2 months or so. Until then, I'll sit tight (note however that I aim to trade only the medium/large swings, and let most smaller ones slide)

[rdmk]

s'all about natural systems  

true that

... I think most will be waiting to buy lower or when it's a bit more stable....

yes, but will anyone be selling? that is the key. if the HODLers hold and the fearful watch, then we will consolidate sideways and not slip into a bear market. the steady underlying buying pressure will buoy us along with the trend, and we will reach Sunday's peak in a couple of days. we need to see some renewed selling pressure today to break us out of this consolidation pattern and into a real mid-term correction.

--arepo

pretty much, but I sense a few whales still lurking ready to manipulate the price, possibly chinese, and still a lot of people ready to short one last dip. It might be already starting, china's dipped below 5000.

Sorry, couldn't resist! 

ha!

Say we break through it though. We have 2 post-ATH lows, 590 and 460. Obviously, should we fall below 460 all bets are off. Staying above both of them, on the other hand will give some confidence we've seen the capitulation bottom. Not a signal for a big rally, but slowly upwards moving consolidation probably.

agreed, i'd say if we get to that we'd hit between 650-700

[arepo]

Interesting situation. Bitstamp looking quite a bit more bearish than mtgox. Both are mostly in a state of suspension though, for now.

Let's assume downward breakout today, or over the next few days. Which to me looks slightly more likely right now than the alternative of resuming the 2 week uptrend... Maybe some price targets? If we do in fact go down with some force, but fin support in the 30d EMA (right now @~830 mtgox) I'd take that as a very strong bullish signal for the near future.

Say we break through it though. We have 2 post-ATH lows, 590 and 460. Obviously, should we fall below 460 all bets are off. Staying above both of them, on the other hand will give some confidence we've seen the capitulation bottom. Not a signal for a big rally, but slowly upwards moving consolidation probably.

In any case, until we actually close under the 6h EMA30, I'm not even going to get active. Not a single downtrend came into motion without that happening first in the last 2 months or so. Until then, I'll sit tight (note however that I aim to trade only the medium/large swings, and let most smaller ones slide)

speaking of capitulation,

In your opinion, what is the chance of a final big crash to 600, 500 levels happening within this month before the stabilization of price?

Its will be highly improbable of any fall this month,if market remains above 775 level till 5 jan, although there is a small window for falling below/to 648 level around 20-21 january 2014.

my models similarly predict another high-volume capitulation in about 3 weeks.

Erm... excuse me but are you really trying to tell us that you can predict that in 3 weeks from now there is going to be a high-volume dumping session? Come on, that's stretching it much too far. No amount of analysis can tell you that in this market.

But I suppose 3 weeks does give you quite a long period of time in which to hope for some kind of downtrend (although I have a strong sneaking suspicion the "final capitulation" scenario some buyers are waiting for is never going to happen).

you'd be surprised. i would post the models but im afraid i would be giving away far too much information.

--arepo

hint: the price function is self-similar on all scales like a fractal. zoom out and apply the same methods you do to make short-term calls, and voila! is that really a strange concept?

so that's where we're headed now. bumpy consolidation into a final capitulation event, and then we can finally be done with the craziness of the December crash. however, if the bubble paradigm we've seen so many times before holds we will not see sub $450 and we will likely not see sub $600.

[arepo]

so as the price is, for the most part, playing out the model i presented in the OP and follow-up commentary, i hope my work has helped everyone learn, anticipate, and profit! if you did any of these three, help keep it free and let me know how much you think it's worth.

thanks for the support!

--arepo

[T.Stuart]

so that's where we're headed now. bumpy consolidation into a final capitulation event, and then we can finally be done with the craziness of the December crash. however, if the bubble paradigm we've seen so many times before holds we will not see sub $450 and we will likely not see sub $600.

Arepo - excuse my wish for precise figures but can you please give me a target I can quote you on?

You know where I stand!

How long until we reach the bottom of the correction you are proposing?
What price will be the low in your opinion?
What would it take for you to accept that the current situation is not in fact the correction you are proposing? What are the odds of this eventuality?

So that it is clear here is a screenshot of the GOX charts right now, so we have a time reference for the future.



Of course you cannot give 100% precise figures. But I would like something I can quote you on if possible. This is not to beat you at any game, but rather because I think that as someone who practises a science that many would feel they must follow if they have no experience themselves, I think you should be happy to be accountable for your predictions.

Thanks,

Stuart

[T.Stuart]

OK so on the main Wall thread you said:

"if the bubble paradigm holds then we will definitely see prices no lower than $450 and likely see prices no lower than $600."

But please give odds on this bubble paradigm holding?

Please can you give a timescale?

Please can you tell me what has to happen in the future (prices, timescale, whatever else) for you to accept definitively that what you are proposing today has failed to materialise?

[arepo]

How long until we reach the bottom of the correction you are proposing?
What price will be the low in your opinion?
What would it take for you to accept that the current situation is not in fact the correction you are proposing? What are the odds of this eventuality?

Of course you cannot give 100% precise figures. But I would like something I can quote you on if possible. This is not to beat you at any game, but rather because I think that as someone who practises a science that many would feel they must follow if they have no experience themselves, I think you should be happy to be accountable for your predictions.

Thanks,

Stuart

no issues with accountability, of course; some issues with your request. you see, posting price targets creates a confounding effect that, if enough people know about and "trust" a specific target, and trade according to their best possible actions, the Nash Equilibrium will necessarily invalidate that target as players try to undercut each other for better and better prices. for this reason i usually only provide them in private or in limited release paid reports.

that being said, i'll make an exception in this case, in part because i think many still don't put much stock in my work. also, i'm just going to give you direct answers to your questions and not go into the methods i used to arrive upon these answers. however, i will be suffering an information loss at the hands of the forum, so i propose a bounty.

if i can raise 0.1 BTC by the end of today at the address in my signature, i will post the direct answers. there's already 0.02 in there, so only 0.08 to go!

--arepo

[MAbtc]

so that's where we're headed now. bumpy consolidation into a final capitulation event, and then we can finally be done with the craziness of the December crash. however, if the bubble paradigm we've seen so many times before holds we will not see sub $450 and we will likely not see sub $600.

Arepo - excuse my wish for precise figures but can you please give me a target I can quote you on?

You know where I stand!

That's a bit unreasonable. That's a pretty specific range for a bottom.

[arepo]

so that's where we're headed now. bumpy consolidation into a final capitulation event, and then we can finally be done with the craziness of the December crash. however, if the bubble paradigm we've seen so many times before holds we will not see sub $450 and we will likely not see sub $600.

Arepo - excuse my wish for precise figures but can you please give me a target I can quote you on?

You know where I stand!

That's a bit unreasonable. That's a pretty specific range for a bottom.

those are just lower bounds. i do have a much more specific target. i can answer the questions "What is the target price for capitulation? What is the expected timeframe? and What price action would invalidate this model?" if i can raise the bounty described in my previous post. i hope this arrangement seems reasonable. i really can't just go around posting my notes in their entirety on a public forum

forum members who are interested can feel free use this thread to make pledges so that a number of individuals can contribute small amounts but be confident that the bounty will be reached and the information will be released.

--arepo