Technical Analysis for Cryptocurrencies
And the major Western International Indices
Hello, today’s look will be focused on Bitcoin and how several of the major Western International Indices will impact on Bitcoin’s price performance.
Let’s get to it shall we?
The FTSE 100
There is a lot of visual information to the uninformed observer but it’s a really simple chart layout.
Each vertical line is the start or end of a year and I have a linear regression model mapped over 13 years and 1 month which brings us up to our current date of the 1st of Feb 2022.
Towards the bottom of my chart, we have a custom StochRSI on a 3/3/23/23/close setting and a standard RSI indicator.
Now, as we’ve dealt with the chart layout, let me draw your attention to the most important aspect of this chart, the Pearson Coefficient which is that long blue decimal point number at the bottom left corner of the linear regression channel. It reads as 0.75 which is meaningless to most whom don’t understand or know about linear regression and the Pearson Coefficient and so, let’s just simplify this by stating that the Pearson Coefficient is the probability that a trend will continue. Anything above 0.5 is considered to mean that a continuation of a trend has a greater-than-half chance of continuing. To simplify the Pearson Coefficient further, we can simply just convert the decimal point value to a percentage which yields the result of 75%.
In terms of forecasting, we can now draw the following conclusion:
“The FTSE 100 has a 75% probability rating that it will continue to have a price action that will move within the bounds of the linear regression channel.”
We have to temper the above statement with the StochRSI and RSI indicators. The StochRSI indicator is showing that the FTSE 100 is overbought and is likely to have some form of price retracement, this is also inline with the RSI indicator which shows that the UK FTSE 100 has formed a small “bubble”.
Knowing what the indicators are showing us, it is safe to say that the FTSE 100 is likely to experience a retracement between 0.1% and 7% which keeps the price within the boundaries of the linear regression model, after which, a new stage of growth will ensue which will most likely break the high point of 7696 before the end of Q2.
The FTSE 100 is intrinsically linked to the US major indices and the US indices have a direct impact upon the Crypto-markets which means that there is a trackable linearity between the FTSE 100 and the Crypto-Markets by proxy whereas there is no direct correlation between the Crypto-Markets and the FTSE 100 directly which brings us to the end of this section and to the start of looking at the US indices.
US Indices
Before we dive in to the charts, I wanted to briefly touch upon the indices I track and the reason behind those choices.
First we have the Dow Jones Industrial index. For me, this is the cornerstone of my tracking regime because the DJI is a direct measure of the general trends of the US economy and is often referenced by global economists when discussing the US economy.
Next we have the S&P500 index. This index tracks 500 companies in the US and so, is a much more diverse indication of the overall performance of the US economy. Whereas the DJI only focuses on 30 of the most influential companies in the US, the S&P500 takes a broader look because, after all, the more companies you include in any tracker, the more data you have to dissect and so, the more insight you can glean but at the same time, you can generate more “informational noise” too which is why I look at both the DJI and S&P500.
The last US Index I track in relation to Cryptocurrencies is the IXIC — Nasdaq Composite Index. Whereas the DJI was only looking at 30 companies and the S&P500 looked at 500 of the top companies in the US, the Nasdaq Composite Index looks at all companies listed in the Nasdaq Stock Exchange as well as including the information from the DJI and S&P500 and so, the Nasdaq Composite Index can be considered the most macro view of how the US economy is performing. Having said that though, we have to remember, as much as this index has the most in terms of data, it will also generate the most “informational noise” as well.
Hopefully you can see the logic behind why I look at the three listed indices. These indices allow me to get a macro or micro insight in to the trend direction of the US economy which then allows me to translate that insight in to actionable insights for the Cryptocurrency markets.
Let’s take a look at the three indices now to see what information we can glean and to see if there is any correlation with regards to the insights we generate.
The Dow Jones Industrial Index
As you will be a little more familiar with my chart layout as described in the section on the FTSE100, let’s get in to the interesting points shall we?
The Pearson Coefficient is reading as 0.89 which equates to an 89% probability factor that the trend direction for the DJI is likely to continue for the foreseeable future.
The StochRSI shows the DJI as being close to oversold status which is interesting because it suggests that the price action last week has formed a “local bottom” meaning that the DJI is likely to range between the median and the upper boundary of the linear regression channel. This presumption is also backed up by the RSI indicator which is at it’s lowest point for 13 months which seems to indicate that the DJI is going to enter a phase of aggressive price increases.
The S&P500
The first thing you’ll note with the S&P500 is that the Pearson Coefficient is at 0.94 which equates to a 94% probability that the trend direction for this index is likely to continue. This is an exceptional P-Value which should instantly reassure any investor of the S&P500 despite the quite dramatic 9% downswing over the first three weeks of 2022.
The StochRSI is showing as oversold but the reversal is on the horizon which means that the price action of the S&P500 is likely to move back towards the median in a 9%+ gain in the very short-term.
The RSI indicator had it’s lowest point formed back in March of 2020 with the commencement of the Covid-19 outbreak but if we dismiss this trough as a data-point outlier, we can then say that the RSI is at it’s lowest point for 22 months which, considering how the RSI presents from an historical perspective, would indicate that upward momentum is being generated as investors once again gain confidence.
Without a significant “world event”, it is safe to presume that the high of 4819 will be broken by the end of Q2 of 2022.
A traditional investor would be hard-pressed to find a more appealing entry-point for taking a long position with the S&P500 to catch a short-term 9%+ move to the upside.
Conclusion on Traditional Markets
The conclusion we can draw here is quite simple, investor confidence is growing and money is flowing. Yes, inflation continues to be a massive hinderance and interest rates continue to be left at extremely low levels but despite these issues, the outlook for the markets is quite positive and knowing that money will continue to pour in to the markets as investors seek places to grow their capital does mean that money will also pour in to the Crypto-Markets.
Crypto-Market Outlook
The P-Value is showing as 0.47 which equates to a 47% probability factor of the trend direction remaining valid for the Crypto-Market. Now, this is interesting as some of you will end up thinking that this means there is a 53% probability that the trend direction will be invalidated and whilst this is an accurate statement, we have to take in to consideration that as well as the P-Value being a measure of probability, it also takes in to account linearity, how well the price action of an asset follows the median of the model. As you can see on this chart, the Crypto-Market has seen an excessive level of volatility which has slightly skewed the P-Value but we can say that since the price action for 22 months has been within a measure of -+2 standard deviations, it is likely to say that the P-Value would be higher than 0.5 if the price action followed a more strictly linear pathway along the median of the linear regression model. Knowing this and being able to interpret this well would indicate that the Crypto-Market is about to experience an upswing.
To confirm our presumption, we can look to the StochRSI which is in oversold territory and is currently printing a reversal, furthermore, the RSI indicator is at it’s lowest point for 23 months and so it seems relatively safe to say that an upswing in price action is on it’s way but the question is, how much of an upswing?
The whole Crypto-Market is at a point of resistance at this point in time whereby if it’s value can exceed $1.755T then we can expect at minimum, an upswing of 18% which brings the market cap to $2.105T or if there is an exceptionally positive move, the Crypto-Market would then aim for a 71% move which would bring the Crypto-Market back to it’s previous high of $3.009T. If the 71% move comes to pass, I would then fully expect a new ATH to form and the market to close the year out between $3.176T and $3.855T.
Now, considering that Bitcoin makes up a significant portion of the value of the total market cap for the Crypto-Market, it is most likely that Bitcoin will be the driver of any significant market move which brings us to looking at the chart for Bitcoin.
Bitcoin Outlook
When looking at this chart, the first thing you will note is that the P-Value is exceptionally low as it sits at 0.19 but again, just like with the Total Market Cap for the Crypto-Market, we have to consider how much the price action volatility of Bitcoin has skewed the P-Value as it refrains from following the median pathway tightly. From my personal perspective, there is enough price action to suggest that the linear regression channel is representing the upper and lower boundaries of Bitcoin correctly until price action proves otherwise.
With the above in mind, let’s tackle the obvious issue which is the 12 week downturn in the price of Bitcoin. If this downward leg is to be reversed then Bitcoin needs to move above $43,071.
For confirmation of a reversal to an upwards leg, we can once again look at the StochRSI which shows Bitcoin deep in oversold territory but is currently printing a reversal which would add weight that we can expect to see a minimum of 12% gains on Bitcoin over the coming weeks and once $43,071 is broken, we can once again expect to see a further move of 70% to return to the highs of Bitcoin before the high is broken in Q3 2022.
There has never been a better opportunity to enter the Crypto-Market in recent years or to onboard more Bitcoin if you are an established trader/investor.
Conclusion
All in all, there is a massive amount of potential and positivity in the air for the Crypto-Market and Bitcoin that even this conservative investor cannot deny.
I truly expect that Summer of 22' will be a bumper time indeed.
Thank you for reading and I hope you’ve found this useful.
If you don’t already follow me on Twitter, feel free to find me here — https://twitter.com/JimboEye
See you out on the trading floor!
