Arepo's Weekly Newsletter Discussion and Analysis

[arepo]

Arepo's Weekly Newsletter, running through 23 June 2014.

New Pricing Tiers! (as of 30 March)

0.025 BTC -- 1 issue
0.085 BTC -- 4 issues
0.25 BTC -- 12 issues

I am opening this thread as a center of discussion for my weekly publication. Please feel free to post any questions, comments, and other feedback here. Non-subscribers are welcome and encouraged. Subscribers, try to refrain from posting newsletter content in this thread. If you have a content-specific question, feel free to PM or email me.

General commentary, supplementary analysis, and alerts in the event of a mid-week update will be posted here.

I am always accepting new subscriptions, so PM me if you are interested!

Current Subscriber List:

oda.krell -- 16 issues (expires week of 23 June)
docile -- 16 issues (expires week of 23 June)
John999 -- 8 issues (expires week of 28 April)
kramerc -- 8 issues (expires week of 28 April)
iron77 -- 8 issues (expires week of 28 April)
kwest -- 4 issues (expires week of 31 March)
jlin -- 16 issues (expires week of 23 June)
CoinBurner -- 4 issues (expires week of 31 March)
Aquatic -- 16 issues (expires week of 23 June)
Blue -- 16 issues (expires week of 23 June)
Ultros -- 4 issues (expires week of 14 April)
Roger_Murdock -- 16 issues (expires week of 23 June)
rushthatspeaks -- 4 issues (expires week of 14 April)
Vectra -- 1 issue (week of 24 March)
castle -- 12 issues (expires week of 23 June)
damdam -- 4 issues (expires week of 21 April)
windjc -- 4 issues (expires week of 21 April)
CoolStoryBro -- 4 issues (expires week of 28 April)
whiz1003 -- 12 issues (expires week of 23 June)

[arepo]

The first issue was just sent out to the following users:

oda.krell
docile
John999
kramerc
iron77
kwest
jlin
CoinBurner

Thanks for your support and happy trading!

[oda.krell]

Very happy with your first newsletter. Exactly the kind of mixture I was looking for: solid mid-term analysis, with some derived short-term recommendations.

Some (critical) remarks, if you allow:

(1) You show evidence for the 'factor 3' hypothesis, i.e. that we play out the correction at a speed 3 times as slow as that of April 2013. But in the end you don't make the obvious conclusion: that if we don't just see the local minima so far 3 times slower, but the *overall* correction will be at that speed, then we're in for another few months of bear market. Don't get me wrong, I don't believe there's a conclusive answer to this question (yet), but it's a bit strange IMO to bring up the 'factor 3' argument, but then not mentioning the possibility of a sustained downtrend.

(2) Your trendlines are a bit debatable. You go to great lengths to build them on as many points of contact as possible (i.e. you're rigorous), but then you're quite quick to declare candles that fall outside as "outliers", which is problematic in my opinion. In the end, I see more or less the same figure you describe, but I just wanted to remark on the 'points of contact' vs. 'outliers' problem (specifically, the chart on page 10)

But in the end, that's details... you did a great job, in my opinion.

[arepo]

Very happy with your first newsletter. Exactly the kind of mixture I was looking for: solid mid-term analysis, with some derived short-term recommendations.

Some (critical) remarks, if you allow:

(1) You show evidence for the 'factor 3' hypothesis, i.e. that we play out the correction at a speed 3 times as slow as that of April 2013. But in the end you don't make the obvious conclusion: that if we don't just see the local minima so far 3 times slower, but the *overall* correction will be at that speed, then we're in for another few months of bear market. Don't get me wrong, I don't believe there's a conclusive answer to this question (yet), but it's a bit strange IMO to bring up the 'factor 3' argument, but then not mentioning the possibility of a sustained downtrend.

(2) Your trendlines are a bit debatable. You go to great lengths to build them on as many points of contact as possible (i.e. you're rigorous), but then you're quite quick to declare candles that fall outside as "outliers", which is problematic in my opinion. In the end, I see more or less the same figure you describe, but I just wanted to remark on the 'points of contact' vs. 'outliers' problem (specifically, the chart on page 10)

But in the end, that's details... you did a great job, in my opinion.

thanks for the feedback

i'm not sure i quite follow your first criticism. it is true that the April bubble shows a fifth capitulation, "E"; is this what you are referring to? i'm not sure i would describe the intervening price action as a bear market, though. also, from what i can gather, you're talking about a conclusion for the mid-term, which i intentionally was not focussing on. the main reason so much of this issue handled the mid-term picture is because it's always good to be aware of the larger price environment within which these weekly actions are embedded, and the picture i conveyed is the model we're probably going to be working with for the next few issues at least. also in this case, it can inform us pretty well on the weekly scale, but if you're wondering why a conclusion about the mid-term price behavior is missing, that is the reason.

as for (2), i do see your point. i assume you take issue more with the drawn support than the resistance. remember on page 6 and 7, i demonstrate how the CCI data supports the conjecture that d2 is an outlier, so that takes care of the most recent violation. i also think that the consistency of the 'factor 3' data calls d2 into suspicion, by the principle of parsimony. further, the 'cuspiness' of the price action below this support during the two brief periods it was violated is further evidence. all that, however, is in the report, so i assume that doesn't satisfy?

--arepo

[Tzupy]

To me it seems that the 'factor of 3' is not correct. So far, the bear market (not just a correction) has been slower than that.
From 25th April to 3rd May 2013, there were 9 days to drop from the top of wave B. Now from the 6th January to the
25th February, the same drop from the top of wave B took 49 days. So it's more like 'factor of 5'. In April 2013 the corrective wave A
has been harsh, with lots of volume, and that's why it moved fast. The pace slowed in May, so this factor of 5 may need adjusting.
But it's too early to tell if the current market has completed one upward sub-sub-wave and a small correction and has begun the
second upward sub-sub-wave, that could reach 750$ if seller pressure won't be high.

[arepo]

To me it seems that the 'factor of 3' is not correct. So far, the bear market (not just a correction) has been slower than that.
From 25th April to 3rd May 2013, there were 9 days to drop from the top of wave B. Now from the 6th January to the
25th February, the same drop from the top of wave B took 49 days. So it's more like 'factor of 5'. In April 2013 the corrective wave A
has been harsh, with lots of volume, and that's why it moved fast. The pace slowed in May, so this factor of 5 may need adjusting.
But it's too early to tell if the current market has completed one upward sub-sub-wave and a small correction and has begun the
second upward sub-sub-wave, that could reach 750$ if seller pressure won't be high.

it's difficult for me to analyse your figure because i don't deal much with elliot waves. my analysis was using a different fractal model which focussed on the patterning of capitulation events. either way, i don't doubt that your data may suggest that as it is using a different model. that is, both of our interpretations are likely correct, we are just measuring different dimensions.

--arepo

[arepo]

---
6-hour scale w/ mid-term resistance from figure on page 10, and a short-term moving support


https://i.imgur.com/Qva2Y7S.png

---

So we're running out of space here, and one of these bounds will have to fail. it still doesn't seem like we have enough volume to break above the mid-term resistance. the expected strong bounce down would send us slowly towards the mid-term support i noted in the newsletter, and you can continue to use the model i presented to trade the range. a break above the mid-term resistance would falsify this model.

here's the resource you can use to reconstruct the lines. use the "/" button to the right of the "Settings | Tools" panel.

--arepo

[arepo]

---

6-hour scale


https://i.imgur.com/LPi4cYw.png

---

looking at the 6-hour scale, we see a reversal candle (first marked in blue), which we can identify by its long wicks and small body. in general you can also use volume to help confirm these candles, but since volume is relatively low right now that method is not applicable. this corresponds with a bounce off of the mid-term resistance (not drawn, see figure on page 10 of issue 10 March), confirming the model.

however, we see a second possible reversal candle, also marked in blue. this may be a micro-term reversal (meaning just a couple of periods long) where the price may attempt to retest the $645 resistance (marked in white). the model presented in the newsletter suggests that this retest, if it occurs, will fail, and we will continue to trend downwards.

---

1-week scale


https://i.imgur.com/ox43PcI.png

---

zooming out, there is a possible descending triangle forming on the 1-week scale with a moving resistance and a flat support (drawn in white) which also supports the model presented in the newsletter. this would suggest that the next price target for this trend down will be around $605, close to the known support at $600.

if we break under this support, which may happen depending on how many weak hands there are in the market right now, we may continue to trend downwards all the way to the mid-term support detailed in the newsletter (figure on page 10 of issue 10 March).

another way to understand what is going on right now is to assume that the large movement up to $710 caused the market to be extremely overbought in the short-term. a short period of consolidation followed, and then a movement down to the support at $605 (visible in the 6-hour figure above). the action since then was likely largely composed of weak hands naively reading the recent large buy as a very bullish sign. however, not many traders were convinced of a real reversal of the mid-term downtrend and so buying pressure, while steady, remained light. since trading volume is just generally low right now, there was not much selling pressure to counter it, causing us to gently trend up to the mid-term resistance around $650-$660. however, when the price failed to decisively break-out on such low volume as projected in my last post, some weak hands sold, causing the bounce. as such, depending on how much of the buying action since the $710 move was composed of similarly weak hands, we could trend all the way back to the last $605 low, or lower.

--arepo

[arepo]

This week's issue was just sent out to the following users:

oda.krell
docile
John999
kramerc
iron77
kwest
jlin
CoinBurner
Aquatic

---

i do want to take this time to share with the greater forum some feedback i received via pm regarding last week's report:

Thanks for last weeks newsletter, it is exactly what I was hoping would exist somewhere.  For me its a perfect balance of analysis and a description of the methods used to produce that analysis.  Your style of communicating has a strong educational flavor to it and its the best kind, the kind that comes completely naturally to a person.  I've been reading it this morning and I feel 100% more comfortable with my understanding of the current situation in the market than at any time over the last 4 months I've been involved in it.  What a relief!

thanks for the amazing feedback!

i am always accepting new subscriptions, so PM me if you are interested!

--arepo

[arepo]

Also, i have recently received some interest regarding a daytraders' daily report. this is in the works to launch as early as this week. it would consist of one email a day detailing a general observation and price targets, running for 4 weeks. PM me if you would be interested in this service!

--arepo

[Kramerc]

I've enjoyed this week's newsletter even more than last week's. I find it specific, educational and well detailed, a perfect mix for someone who is interested not only in what the price movement will be, but also in learning and picking up qualitative information regarding technical analysis.

Thank you for your quality work arepo. Keep'em coming, I can't wait for it to be monday again

[arepo]

I've enjoyed this week's newsletter even more than last week's. I find it specific, educational and well detailed, a perfect mix for someone who is interested not only in what the price movement will be, but also in learning and picking up qualitative information regarding technical analysis.

Thank you for your quality work arepo. Keep'em coming, I can't wait for it to be monday again

i can't wait for Monday either! i'm having a lot of fun trying to create that perfect balance.

---

TUESDAY UPDATE:

so the expected move to the support at $605 (page 11) came pretty quick. i hope the newsletter helped everyone anticipate this fully, as it was outlined pretty precisely. we can still use the Money Flow Index to help us figure out where this movement will bottom out, but we've already reached the moving support in the diagram i supplied on page 8:

---
daily scale


https://i.imgur.com/Iooo70A.png

---

see why i like oscillators so much? the data predicted the price support at $605 quite well, indeed. however, the daily smoothing is preventing us from seeing the other moving supports in the oscillator data which can help us predict the lower price supports which may soon come into play. let's increase the grain:

---
12-hour scale


https://i.imgur.com/8KCbYI4.png

---

here we can see two candidates. in blue, we see a higher moving support that i believe is associated with the next price support down, mentioned on page 11. in black we see a low, barely ascending moving support which could be associated with the bottom-most price support that still maintains the mid-term bullish outlook -- $530.

so, there is a single statement which i must correct in the issue 17 March, having misidentified the moving support in the MFI daily data. on page 12, where i said "as long as we do not break under this support, the mid-term outlook remains bullish", i should be referring to the black support in the 12-hour figure above, NOT the support detailed on the MFI on page 8. we are already resting on that one today, and there is still a lot of room for healthy downwards consolidation that does not preclude a bullish trend reversal.

--arepo

p.s. also, just a tip, if you're using the Bitstamp orderbook, it appears as though someone may be front-running similar price targets to the ones i presented. the bid side is stacked at $580 and $550, a little bit above the two supports i outlined in the report. be sure to take these orders into account if they do not move by the time these price levels come into play.

[arepo]

---
2-hour scale, Money Flow Index


https://i.imgur.com/6bCFwcU.png

---

here we have two possible moving resistances. BLUE resistance has 3 points of contact and 1 violation. GREEN resistance has 6 points of contact and 4 violations. violations of supports/resistances in oscillator data are far more common than in price data, so i do feel that GREEN is the best model in this case. we are threatening to break out of this pattern, but as long as we're trapped under this bound i would expect more downwards movement. we're not out of this hole yet...

--arepo

[arepo]

I hope the newsletter has helped everyone anticipate the price action we've been seeing. We've just touched the second bearish target from page 11 ($575), and i'm altogether pleased with the accuracy of my derived supports so far. as always, feel free to post questions and comments here in this thread.

I am also pleased to announce that my Daytraders' Daily Report will be launched this Saturday, 22 March! it will consist of a single email with a brief comment on the day's outlook as well as price targets, sent out daily between 12 am and 9 am EST. if anyone is interested in this service, please PM me for details

--arepo

[Kramerc]

so, there is a single statement which i must correct in the issue 17 March, having misidentified the moving support in the MFI daily data. on page 12, where i said "as long as we do not break under this support, the mid-term outlook remains bullish", i should be referring to the black support in the 12-hour figure above, NOT the support detailed on the MFI on page 8. we are already resting on that one today, and there is still a lot of room for healthy downwards consolidation that does not preclude a bullish trend reversal.

I think that the moving support in the MFI 12-hour data has been broken. Do you think this compromises our medium-term reversal, and do you see possible lower lows than the 3rd low target in the newsletter?

To me, the current trending down on low(er) volume suggests further price erosion even without a panic sell going on. Slowly dipping a couple tens of dollars every day, with counter-trend rallies being small and short-lived.

[arepo]

so, there is a single statement which i must correct in the issue 17 March, having misidentified the moving support in the MFI daily data. on page 12, where i said "as long as we do not break under this support, the mid-term outlook remains bullish", i should be referring to the black support in the 12-hour figure above, NOT the support detailed on the MFI on page 8. we are already resting on that one today, and there is still a lot of room for healthy downwards consolidation that does not preclude a bullish trend reversal.

I think that the moving support in the MFI 12-hour data has been broken. Do you think this compromises our medium-term reversal, and do you see possible lower lows than the 3rd low target in the newsletter?

To me, the current trending down on low(er) volume suggests further price erosion even without a panic sell going on. Slowly dipping a couple tens of dollars every day, with counter-trend rallies being small and short-lived.

yes, this compromises our mid-term reversal, for the time being. that is, it opens the possibility of another major capitulation event before we break out of the mid-term downtrend. this would correspond with the 3rd target from page 10 (but remember to take into account the $550 wall on bitstamp). further price erosion without large volume can bring us back down to the $578 low, but i doubt we will see new lows without corresponding volume highs.

in the case of hitting the 3rd target, will this support hold or will we see even lower lows? it is hard to say without analyzing the data associated with the movement. it is certainly possible that price behavior could turn very bearish very quickly, as this is the fifth consecutive red candle on the daily scale and the bid-side of the orderbook is still precariously thin. i will be sure to comment further on this possibility before the week's end.

--arepo

[arepo]

the data is in!

i apologize for not being very specific in my previous post, but it's important empirical practice not to make claims that the data doesn't support. the picture was looking a little bit fuzzy before this most recent price action. so what just happened? the not-so-rare case of speculators contributing to price volatility:

---
6-hour scale


https://i.imgur.com/LVjtXyu.png

---

my best hypothesis is that this 6-hour candle that's just about to close represents what happens when too many traders short or sell coins with the expectation of profit. since the market moves to minimize profit, when too many traders short but the market consensus is bearish, in order to minimize the excess profits which would correspond with the downtrending market, a short squeeze occurs. this is a counter-trend movement which causes the weakest hands to close their position, in this case buy back in, before moving downwards, thereby minimizing the overall profitability of the move. i hope none of you got squeezed out!

so the spike up started with a large buyer, but then was compounded by more and more traders closing their short position with a market buy. then, after enough traders were squeezed out, we moved down to the next support. so what can we deduce about future market behavior from this strange candle?

let's take a look at some indicators:

---
daily scale


https://i.imgur.com/dkkkEqy.png

---

the MFI has formed a solid flat-bottom support, which leaves some room for a downward bounce, but reduces the possibility of moving lower than the 3rd target from page 10. if we do make that lower low, but the MFI shows a bounce off of this newfound support, that would mark the end of this bearish action, as a lower low in the price corresponding to an even low in the indicator is bullish.

the Mass Index is flattening out, which is also bullish. again, its first positive-slope movement could easily be associated with another movement down, but this inflection generally marks the start of a new trend.

the CCI is pretty deep in oversold territory, which usually corresponds to peak bearish activity heralding a reversal, again consistent with the MFI and Mass Index. the steadily increasing bid depth and new disparity between the bid/ask spread (the orderbook has completely reversed since yesterday, with the bid side slope being greater than the ask for the first time since we started this downswing) also suggests that we haven't much more downside to this price action.

the only strictly bearish indicator is the MACD, which shows an immature crossover to the downside. this signal is immature, however, because the daily candle that is contributing to it has not yet closed, so that's definitely something to keep an eye on.

in conclusion, a move to the 3rd target from page 10 is still possible, but action below this support is unlikely at this point.

--arepo

edit: thanks for bearing with me (no pun intended ) while i collected enough data to make a strong case. i know that price action this week has been a bit crazy, so i hope i've been making my supplementary analysis a comprehensive play-by-play to pair with the newsletter. i received some questions via PM and in this thread, which is great -- keep 'em coming if there's any clarification needed! i launched this project specifically to help you all feel more comfortable and more informed in your trading strategies.

[oda.krell]

[...]

edit: thanks for bearing with me (no pun intended ) while i collected enough data to make a strong case. i know that price action this week has been a bit crazy, so i hope i've been making my supplementary analysis a comprehensive play-by-play to pair with the newsletter. i received some questions via PM and in this thread, which is great -- keep 'em coming if there's any clarification needed! i launched this project specifically to help you all feel more comfortable and more informed in your trading strategies.

Thanks for the update!

Perhaps I'm leaning a bit more towards a bearish scenario than you at the moment, with ~550 (EMA trend), or even 518 (fibo level) as possible targets for the coming days, mainly because I see clear signs we're gathering momentum to the downside (e.g. the daily MACD you mentioned, or looking at a Fisher transform indicator), and the divergences you see on the oscillators might not have the strength to counter that momentum.

So this is maybe one suggestion I have: your analysis is rigorous, and plausible, and it might well come true (and it'll turn out my more bearish view is wrong). But I also think to be profitable as a trader in the long run it is more important (and more likely) to be *prepared* than to be *right*... what I mean is that several options/scenarios should always be available to a trader, and he/she should pick the most likely one based on what he sees as time progresses.

So maybe you could look into the possibility of a continued (and gathering momentum) downward move, and what signs would point to that one playing out. To be clear: I'm not saying you should change your view, just that it'd be interesting to see your rigor applied to a (maybe less likely, in your eyes) scenario that diverges from the view you presented above.

[arepo]

Thanks for the update!

Perhaps I'm leaning a bit more towards a bearish scenario than you at the moment, with ~550 (EMA trend), or even 518 (fibo level) as possible targets for the coming days, mainly because I see clear signs we're gathering momentum to the downside (e.g. the daily MACD you mentioned, or looking at a Fisher transform indicator), and the divergences you see on the oscillators might not have the strength to counter that momentum.

So this is maybe one suggestion I have: your analysis is rigorous, and plausible, and it might well come true (and it'll turn out my more bearish view is wrong). But I also think to be profitable as a trader in the long run it is more important (and more likely) to be *prepared* than to be *right*... what I mean is that several options/scenarios should always be available to a trader, and he/she should pick the most likely one based on what he sees as time progresses.

So maybe you could look into the possibility of a continued (and gathering momentum) downward move, and what signs would point to that one playing out. To be clear: I'm not saying you should change your view, just that it'd be interesting to see your rigor applied to a (maybe less likely, in your eyes) scenario that diverges from the view you presented above.

you make good points. your call of $550 is plausible, and corresponds to the scenario where we move down to the 3rd target from page 10 and bounce. i have compiled some charts to further explore what a more bearish turn of events will look like.

right now we're looking at a standard triangle consolidation after the last move down that could very well be a bearish flag:

---
1-hour scale


https://i.imgur.com/vmIZl7A.png

---

we have three possible scenarios from this point:

a: we break upward -- very bullish, less likely.

b: we break downward and retest the last low or make a new low no lower than the 3rd target -- neutral, most likely.

c: we break downward and promptly break under the last low, continuing past the 3rd target -- bearish, least likely.

the data does not support a, and b will look like the bounce off of the flat support in the MFI as explored in my previous post. the scenario that you're mainly concerned with is c. what would that look like?

---
4-month daily scale


https://i.imgur.com/TDNqPfD.png

---

the Accumulation/Distribution data is trending down. this looks worrisome. however, the Chaikin Oscillator, which generally tracks the slope of the Acc/Dis line, is flattening, which suggests a weakening of downward momentum. if this figure continues to flatten, it would support the bullish case, b. if the trend changes from the increasing negative slope approaching zero to a decreasing slope, it would suggest case c.

---
4-month 12-hour scale


https://i.imgur.com/XRjAnXp.png

---

the daily scale Chaikin Money Flow shows solid support throughout the entire consolidation period after the last ATH, only briefly going negative during the largest volume capitulation events. the 12-hour scale, pictured above, tells a different story, and is another solid piece of evidence for the bearish case. we definitely need to see a peak in this data to be sure of scenario b. scenario c would see a continuation of the current trend with larger and larger negative values in this data.

the ADX is also looking bearish. we need the RED directional line to form a peak and then retrace under the past high at around 25. a continued increase in this indicator also supports c.

---
4-month daily scale
annotated with projection in red


https://i.imgur.com/CkGDhd8.png

---

for scenario b, we should see some support from the 40-line on the daily RSI. this provided serious resistance during the last set of lows, and today's immature daily candle has dipped us below. however, if we can hover around this point, this strengthens the case for scenario b. a decisive break below this low suggests scenario c.

the William's Oscillator is deep in oversold territory. a reversal here would look like the inverted head&shoulders shape as annotated. moving lower than the figure marked would suggest scenario c.

--- ---

i hope i have provided an exhaustive picture of each scenario: b, the bullish one i consider more likely, and c, the bearish one you asked me to explore.

thanks for the challenge! it's always important to stay impartial in price projections and be aware of all contingencies.

--arepo

[oda.krell]

Great analysis. Thanks, arepo. Very thorough, and convincing, as always.

I guess in the end we have a slightly different approach to trading: I'm guilty of being a bit of a "trend chaser", and you seem to be more a "predictive trader". And if I look at the larger charts picture, I can mainly see trends that slope down, be it 2 weeks, 2 months or 3 months. And all of those do so with pretty high accuracy. The only trend that falls out of this picture is a ~1 month trend. Depending on how you look at it, it is however also the least "established" one in, my view. So I tend to be skeptical that the more established downwards trends are really over, and the less established upwards trend is really the dominant one.

Based on my long-term assumptions about BTC price, I'm most of the time all-in in BTC with my trading position (except for periods that are absolutely certain to be a longer running down trend), but I freed a bit of fiat a day ago because I suspect the downtrend will continue, though I'm not sure of this. I will say that much however: if in the coming 3 days price doesn't go back into the territory where it falls back in line with the so far "frail" uptrend, by which I mean: break through 600 and stay there, I'm almost certainly going to free more fiat.