The cryptocurrency markets have seen extreme selling in the past few days following the larger downtrend we’ve been in since June. Total market cap has come down from $115 Billion to $80 Billion. I’ve covered the selling several times in recent videos (linked below) and there is no doubt that the trend is still down. However, one has to ask: “Was the recent selling capitulation or will we see another leg down?”
My experience in the markets is that tops don’t form in a day and neither do bottoms. Perhaps the recent selling was the low-point for now and we bounce around for a while before going up again. Perhaps we see another sharp leg down. Either way, the biggest clues will come from Bitcoin so let’s look at that chart to see if we’ve hit a bottom.
Above is the daily chart of BTC with Fibonacci levels being measured from $1200 up to the top at $3000. It’s clear a descending triangle is forming following the big drop in early June. This is a bearish formation that leads to a sharp leg down if the support zone is broken. Right now, that support zone is between $2250 and $2400. Bitcoin is currently right in the middle of that zone which also happens to coincide with the 38% retracement level. So far, support is holding and the RSI is still around 40, both positive signs for now.
The shorter term moving averages are now turning bearish as well. If the current support levels break, the next stop is $2100. If that level breaks then the next level of support is the zone between $1800 – $1900. If we get that far down, that is where I believe Bitcoin will form a solid bottom and would be a tremendous buying opportunity.
I would wait to see the $2500 level recaptured and ultimately the $2600 level before feeling confident about a new rally and making larger capital commitments.
Below is the daily chart of Ethereum with Fibonacci levels being measured from $53 up to the top at $400.
The drop in Ethereum has been steep and quick. The selling in ETH has also triggered deep corrections in most of the other altcoins. While the downtrend is still in tact, we are currently as key Fibonacci ratio that historically acts as major support. Volume has been very high today so this may be a low point for now.
If this level does not hold, then we could see prices drop to the $140-$160 range as that coincides with the last base as well as the next Fib level. We are currently deeply oversold so a rally up to the $240 area could be next. I would like to see the downtrend broken and the $260 and ultimately the $300 marks recaptured. If you like ETH long-term, this may be a great place to look at it.
Should You Sell Here?
If it were me, I would wait at this point and assess how strong the bounce is. We could rally strong from here but I would keep a close watch on these support levels because if they break, then we could see another sharp leg down.
Should You Buy Here?
I am personally not making an new buys right now. I may look for some short-term trades if the rally begins but will likely take profits as we approach resistance and reassess the markets from there.
There are several altcoins that are key support levels and have already seen deep corrections. Many of these could offer great buying opportunities here for longer term value plays but I would not expect huge gains right away. Some of those right now are Siacoin, Stratis, Golem, Anshares/NEO, Waves and NEM. I would also be looking at Litecoin and Ethereum.
With all of these however, one should keep a very tight stop loss in place (physical or mental) and be ready to step aside and if heavy selling ensues.
My Approach Right Now
I don’t like to post my portfolio allocations because I can change them often and sometime drastically based on market conditions. So full disclaimer, by the time you read this, it may be different.
First off, I’m am in a 50% cash position and have increased my fiat from 25% just a few days ago. I continue to take a conservative approach right now and remain cautious with any new buys. As of this writing, my largest holding is Litecoin and it has served me well during this recent selling. I still have a little Bitcoin but have sold a lot of it and will wait before getting back in. I have essentially no Ethereum right now. I do have several small positions in a handful of altcoins that add up to about 10%. I recently (past days/weeks) exited many positions as support levels and stop losses were taken out.
For now I’m on the hunt for set ups and bottom formations and will step back in when it looks like a good low has been established. No doubt there will be some trade-able rallies between now and then but as for longer term holds, I want the trend in my favor first.
Conclusion
I think we’ll bounce from here but will ultimately see more downside testing before this correction is over. The bottom in ETH may be in but I would not be surprised to see BTC go lower. It’s best to be patient and wait it out instead of guessing bottoms along the way. There will be a bottom! When it shows up, we’ll know and we’ll have many opportunities. The trend will be in our favor and cryptos will be making daily/weekly gains again. They are not going anywhere and blockchain is here to stay!
