Global recovery or dead cat bounce?
With short sellers caught out, a sustained move higher could trigger a serious bear trap. This set up would cause the move higher to be just as violent, if not more so, than the move down. Watch this space.
An intra-day market reversal on high volume for both the crypto markets and stock markets has potentially laid the groundwork for a sustained recovery. Markets were in the midst of a capitulation before closing higher on the day. With liquidations setting off a cascade of selling, BTC traded as low as £33k before recovering to $37k to close higher on the day. This could well prove pivotal and be the turning point the market was looking for.
Surely this is a good sign? The pain must be over. The low must be in for now. Well, not so fast! Caution is still in play. However, the signs of recovery that breathed life into the markets are so compelling that they can’t be ignored.
- Huge intraday reversal, backed by volume
- Whales buying
- Technical reinforcement
Soloway the sage
In terms of timing and accuracy, probably the greatest call we have seen from a guest on our show. Yesterday Ran spoke with Gareth Soloway who highlighted these charts.
He called for a reversal to the $40 – $42k region before resistance is met. BTC went on to rally from $33k to $37k to close up on the day and post a huge bullish engulfing candle. It’s a must watch show to hear the full interview with Gareth as well as other fantastic guests.
Gareth wasn’t the only one to call it. Check out @MatiGreenspan
The most impressive thing about this call was that he made it in November 2021 when BTC was at $56k. What was the low point yesterday? You guessed it, $33k.
So the charts are oversold, we know that. BTC has fallen over 50% and some top quality alts are over 70% off their highs. A bounce was bound to happen. The technical analysis supports a strong support at $33k.
Further signs point to something more sustainable though. All eyes are on whether this is the turning point or whether it’s a bull trap.
Stock market correlations
A lot has been said recently regarding the correlation between BTC and the stock markets. This relationship has been triggered by inflation data that has classified crypto and equities alike as risk-off assets that need to be sold if the Federal Reserve decides to slow down the economy.
If we take it a step further, crypto has developed a closer correlation with the tech heavy NASDAQ than to the DJIA or the S&P 500. So to further support the recovery thesis, the stock markets must have reversed yesterday, right? Correct, the NASDAQ was at one point over 6% down before closing up on the day.
So technicals are in play, stock markets are behaving. What else is there? What about smart money, what are the big fish up to?
Buyers having a whale of a time
Some frantic activity yesterday from some of the biggest players in the game provide a third and very powerful sign that we are close to bottoming out.
A frenzied buying spree of BTC is something we can’t ignore. Do they know something we don’t?
There is real conviction to the buying. We know how prices can move when they get going. Crypto on a charge will wait for no one. No other asset class can go parabolic the way crypto can when sentiment is high.
Always follow the smart money, they seem to get it right more often than not. Smart money is patient. Smart money sits on the bid and soaks up the capitulation.
Time to look at other signs
Time analysis is a great tool for predicting market cycles. Is 96 the magic number?
We can see from the narrative that BTC has been posting significant tops and bottoms surrounding the dates. What makes this even more interesting is that day 96 is the FOMC decision on interest rates.
All eyes have been on Fed chairman Powell as to what he will do to curb inflation. An educated guess would be that recent market meltdowns have priced in most of the negative outcomes. This means that anything in line with expectations or with a bullish bias will potentially trigger a rally and possibly the mother of all short squeezes.
The options market has pointed to a sentiment shift. Puts are becoming cheaper than calls which signifies a more bullish scenario.
Relative unrealized loss is also at levels last seen during the July 2021 bottom.
We are even getting CNBC calling a market bottom. Well done Jim, you could well be right.
Whilst none of the signs in isolation point to a recovery, when they are simultaneously aligned, the argument becomes stronger. It’s about putting together the jigsaw to weigh up a risk and reward strategy that will enable you to maximize profit potential during an unpredictable market.
The flip side
Yes the argument for a recovery is very credible but it would be remiss not to highlight the potential bull traps. Of course the bounce could just be a relief rally after a huge fall. Add to that, deeper economic woes and the task Mr Powell faces. How will he slow down an overheating economy without causing a crash landing?
Although we are currently aligned to global markets, are we going to stay that way or will we eventually decouple? Will the ‘deeper economic woes’ that Bloomberg highlights even affect crypto? Crypto is playing a different game and working to different timescales.
If we take a very simplistic view. Higher interest rates have historically been negative for stock markets because leaving your money in the bank to get an extra 1 or 2% becomes more attractive than risking it in shares to make 3 – 4% per year.
Question. Who is in crypto for 3 – 4% per year?
While everyone looks for a bottom and with it, renewed market confidence , the fact remains that markets are still volatile. There are numerous events that could derail a recovery but similarly there are sparks that could reignite the bull run. We have looked at some compelling signals that point to the beginning of a recovery; Technical analysis data is supported by a huge volume intra day reversal, stock markets also reversed, Whales buying in size, time analysis and of course some fundamental noise and on-chain metrics.
Investing is about calculating risks compared to potential rewards. At these price levels with these recovery signs and of course some caution, it could be the best time to invest.