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AAX Trends

AAX Intelligence Report: 15 June, 2020

AAX Intelligence Report: 15 June, 2020

News & Insights

15 Jun 2020

Bitcoin Price Review

In the last review we looked at the bearish and bullish scenarios which could potentially play out. Since then, BTC has not fulfilled either scenarios with BTC trading a mainly sideways movement with attempts to push BTC both ways by the bulls and bears.

BTC attempted breakouts

These attempted breakouts have so far been false. Since the last report, published by AAX on the 2nd of June, BTC has moved only 1% in a negative direction from around $9500 USD to $9400 USD.

BTC price movement since last report

However, with major moves occurring in the traditional markets, it appears as though BTC will make a huge move within the next week - at the latest by the next report. The significance of this move should not be looked down upon as it will likely determine the cryptocurrency market direction over the next couple months.

Recent formations

In the last report it was stated that BTC was forming a pennant, as demonstrated below; however, as we can see, this pennant was not followed. BTC made a clear break below the upwards support trend line indicating that there would be a reversal to the previous downwards trend. This was not the case with BTC hitting $8750 USD, proceeding to move back up with a pennant re-entry with further increase in price seen after. BTC eventually hit $10250, albeit for a very short period of time; this resulted in the invalidation of the previous pennant.

The previous BTC pennant formation

In spite of the fact that this formation broken down. A new formation with increased validation, over a longer period of time has occurred. Below we can see clearly that an ascending triangle has formed with numerous points of validation, increasing the likelihood that this triangle will be obeyed if a breakout occurs in either direction.

BTC/USD ascending triangle

Bitcoin bullish scenario

In the BTC bullish scenario we would see a positive breakout of the ascending triangle. Ascending triangles usually move in an upwards fashion. In traditional markets, ascending triangles usually act as a continuation pattern; however, in cryptocurrency markets, they have been seen to act as reversals. This is why we should wait for a breakout to occur. In cryptocurrency markets, ascending triangles are still seen as a bullish formation. Here are a couple of examples of previous ascending triangles BTC/USD:

BTC/USD recent triangle from April into May 2020. This ascending triangle resulted in bullish price action after having a positive breakout.

BTC/USD ascending triangle from February - April 2019, the positive breakout of this ascending triangle resulted in major price gains.

Current BTC/USD ascending triangle

The change in formation from a symmetrical triangle into an ascending triangle supports the bullish scenario; it shows that the bears are successfully pushing BTC down from $10200 USD. Although the upwards support trend line (with eight validation candles) is showing that it is only a matter of time until the bulls break the bears, as shown with the other examples.

What is supporting the upwards movement?

RSI Divergence

BTC has a history of BTC divergences with price and the RSI (Relative Strength Index).

BTC/USD Diversion EOY 2019 to Jan 2020

In the example above, there is a flat trend line alongside an increasing RSI value. After this diversion, it resulted in the mini bull run which we saw at the start of the year with BTC increasing 43% within a few weeks.

BTC/USD divergence

The divergence seen here is similar to the one currently being seen. The next trend saw BTC move from $7600 USD all the way to $13000 USD.

BTC/USD current diversion

Currently, BTC is seeing a diversion, as demonstrated in the previous examples, this typically results in positive price action (although it should be noted that RSI diversions can result in a change in trend direction). We will know which direction the next trend will be dependent on which resistance level is broken. If the $10500 USD is broken above then it will result in a new upwards trend. If the $8500 USD is broken below, then it will be a downwards trend.

SAR

The first thing supporting this move upwards is the SAR parabolic. The parabolic Stop and Reverse (SAR) shows us the momentum of BTC. If the yellow line is underneath BTC it means that BTC has positive upwards momentum - if combined with a positive trend line. If the yellow line is above BTC, with a downwards trend line, this indicates negative momentum.

Here is a basic table for SAR usage on BTC.

As we can see from the table above, we are currently seeing a bullish sentiment with the SAR. The only concern with the current SAR state is that there is not significant distance between the SAR and price, meaning that the chance of a change in SAR position is likely - currently, this is not the case. It must also be noted that the SAR can provide false signals in choppy markets; however, the trend line from the ascending triangle shows that we currently have a trend.

Pivot points standard (PPS)

Pivot points (PPS) are an average of high, low and closing prices with the lines dependent on the time scale used on the chart. The average subsequently gives multiple support and resistance lines. These can then be used to indicate whether a cryptocurrency has a bullish or bearish sentiment. BTC has seen three consecutive days of being above the pivot point - this is seen as bullish.

BTC/USD PPS

In time periods 1 and 2 we saw BTC touch the red centre pivot line before proceeding to hit R1, staying above the centre pivot with a bullish sentiment.

BTC/USD PPS

We can see that currently BTC has touched the red centre pivot. If BTC acts in a similar manner, seen in 1 and 2, it would see BTC hit $10,500 USD. This could potentially trigger BTC to break out of the ascending triangle with positive price action. Nonetheless, a movement to $10500 would see a 9% gain from our current position. This percentage can be increased through use of the AAX futures platform with leveraged perpetual contracts (note: increased leverage increases risk of liquidation).

Price targets

$10,000 USD

The first price target for a bullish scenario is $10,000 USD. Even if the triangle is not broken before the next report, provided that BTC does not make a significant break below the centre pivot line and descending triangle, a test of $10,000 USD is highly likely. This would result in a 6% price increase, provided that the bullish scenario occurs.

$10,500 USD

There is major resistance between $10,300 USD (R1 PPS) and $10,500 USD. Although if BTC broke $10,000 USD, a test within the $200 USD gap would definitely be possible. In the bullish scenario, whether BTC breaks through the $10,500 USD depends on the strength of the move; realistically, in the bullish scenario, $10,500 USD will not be broken before the next report, although this is Bitcoin…

$11,100 USD

The next resistance line after $10,500 USD is $11,100 USD, which was tested multiple times during 2019. This would be the next hurdle, although for BTC to test this level would require a huge break from the ascending triangle. A move to $11,100 USD would see BTC increase 18%.

BTC/USD price targets

Conclusion

The bullish scenario is definitely possible, although the continuation of further upwards price movement since the $4500 USD lows seen a couple of months ago depends hugely on BTC’s direction of triangle breakout.

BTC bearish scenario

In the bearish scenario, BTC will not break above the $10000 USD resistance; instead, BTC will break below the upwards support line of the ascending triangle. This will subsequently trigger a move down.

BTC/USD potential move down

What could see BTC move down?

Bollinger Bands (BB)

The Bollinger Bands are showing serious contraction, with a BB squeeze currently taking place. Although the BB are currently providing no signals, there is a bearish BB scenario.

BTC/USD BB support line

In the chart above, we can see that there is a huge BB squeeze, with the width of the BBs at its smallest since January. The dashed red line is the BB support level; if there is a clear break below this, we should expect a huge move to the downside ($10000 USD is upside resistance). A break below this red line would see BTC move into the lower regions of the BBs, potentially into the open chart space away from the lower BB SMA line. This would result in a new downwards trend.

Trend line

In the example shown below, we can see that this trend line with numerous validation points, spanning over multiple months has been broken.

BTC/USD broken trend line

In the bearish scenario, we could see BTC start a new downwards trend providing that $10000 USD is not broken. The bearish scenario may see BTC touch the trend line again, which would be near the $10000 USD region. A clear break above $10000 USD would be needed in order to invalidate this trend line.

Traditional markets

Ever since the COVID-19 crisis took hold of the markets, the correlation between BTC and the S&P 500 have increased to over 0.5 correlation; meaning that the traditional markets and the crypto market (largely influenced by BTC) are correlated. Before the traditional markets closed on Friday, the DJI and S&P 500 saw major losses.

DJI (Dow Jones Industrial) Heikin Ashi chart, major losses.

The losses seen at the end of last week were partially due to fears of a second COVID-19 wave. These fears stemmed from the recent mass gatherings in the USA. If the stock markets were to crash again, as seen in March, all of the previous gains will be wiped out and BTC will be sent down with the traditional markets. If this second crash occurs, investors will pull all of their recoveries or gains of the last couple of months straight into cash.

BTC/USD & SPX/USD correlation.

Many traders do not trade with fundamentals, only with TA, although it is important to note the impact traditional markets are currently having on BTC when they make major moves and the impact they could potentially have on the bearish scenario. In the bullish scenario this would simply be a market blip and will see the stock market continue to recover to pre-COVID-19 levels.

Price targets

$8600 USD

The first price target is $8600 USD, this would see BTC break below the ascending triangle in the bearish scenario. $8600 USD is the first level of resistance. In the BTC bearish scenario, this would definitely be hit, possibly broken. A move down to $8600 USD would result in an 8% loss from current prices.

$7700 USD

In the bearish scenario, $7700 USD would definitely be possible as the next BTC move will be a huge one, this is due to the BB suppression; however, breaking below $7700 USD would be unlikely and would need total bear control to push BTC lower than $7700 USD before the next report. A move down to $7700 USD would result in a 17.5% loss from current prices.

$6700 USD

$6700 USD would be the next target after $7700 USD in the bearish scenario. On BTC’s way down to $6700 USD there may also be resistance at $7400 USD. A move down to $6700 USD would result in a 29% loss from current prices, although a price shift to $6700 USD would be unlikely.

*if BTC breaks $10000 USD in a significant way, the bearish scenario is invalid

BTC/USD bearish scenario, price losses

AAB price review

AAB has had a very poor period since the last report was written, losing significant value; currently sitting at ATLs coming in at $0.48 per coin. AAB has decreased 63% in value since the last report, as shown in the chart below:

AAB/USD chart

When descending wedges form they typically break out in the same direction as the trend before it. In the case of AAB, the price did not (as shown below), this proves why it is important to wait for a confirmation breakout before buying.

Although, is this meltdown of the AAB price a time for more selling or a buying opportunity?

Potential reversal

Trend Line

One indication for a reversal can be seen with the recent break of the downwards trend line, as shown below:

Broken downwards trend line AAB/USD

The breaking of this trend could be the start of a reversal back up, recovering some of the major losses seen over the past week. This would therefore present a good buying opportunity.

MACD

AAB has recently seen a lower positive crossover, a very bullish signal.

AAB MACD crossover

The last time a significant MACD crossover occurred with AAB was during late April until early May. This saw the AAB price increase significantly. This crossover shows signs that a trend reversal could occur.

Previous AAB/USD MACD crossover

Potential consolidation

The Bollinger Bands (BBs) are showing that a potential price consolidation may be set to occur, suggesting that AAB may have found its bottom, or be waiting to continue its move lower.

BBs decreasing in width

The BBs are currently contracting; this suggests that the price will be somewhat stagnant for a period of time. AAB is showing similar characteristics to the first move down. If the consolidation occurs, then the price action after the consolidation will depend on the direction of the breakout.

Continuation of current trend

The Keltner Channels (KC) are showing, that until tested, a continuation of the current trend seems to be most likely.

AAB/USD KCs

As we can see from the chart above, AAB has not even tested the KCs since the downturn began. Although with the potential consolidation, and the break of trend mentioned previously, could see the rate of decrease begin to slow, potentially seeing a reversal in price over the coming weeks.

Price targets

$0.33 USD

$0.33 USD is the next resistance level determined by the pivot points (S1). We are currently below the central pivot suggesting that $0.33 could be the area where we see potential consolidation - maybe a reversal in trend from the current downwards movement. A move down to $0.33 USD would result in a 30% loss from current prices

$0.75 USD

If the current prices are the bottom for AAB, with a reversal in store for us, then $0.75 USD is the first target. $0.75 USD is the 0.236 Fibonacci retracement level. An increase to $0.75 USD from our current position would see AAB increase 61%.

Economic News

  • Lebanon is experiencing severe economic trouble. The country has seen protests across its cities after the USD / LL currency peg failed. The failure of the currency peg caused the value of the currency to drop 70% (since last year). The country has been hard hit by COVID-19 due to the its heavy reliance on tourism. The debt ratio for the country has also soared seeing them only behind Greece and Japan. Lebanon has had to default their foreign debts of $1.2 billion USD. The country is in desperate need of a bailout in order to prevent hyperinflation from worsening. Lebanon will likely be forced to sell some of their gold holdings in order to patch up the country's economic wounds.
  • Car rental company Hertz has filed for bankruptcy. The company, around since 1918, have seen their revenue streams dry up due to COVID-19. Hertz has filed chapter 11. Due to the nature of a chapter 11 bankruptcy, Hertz will restructure their finances in order to pay creditors and owners.
  • The UK economy shrank by 20% in April. To put this into context, during 2008, the economy shrank no more than 1% during a single month. The economic effects of the UK government’s COVID-19 laws have called for the lifting of restrictions in order to prevent a total economic meltdown.
  • Tesla has become the most valuable car company in the world, passing the previous hegemon, Toyota. The recovery from near bankruptcy in 2008 has been nothing short of astonishing, seeing shares increase nearly 6,000% since 2011. TSLA’s share price is currently at $1022 USD trading at ATHs.
  • Talks of a new space race have been emerging with private company SpaceX conducting its first crewed mission.
  • Sony have released details of their new PS5, set to be released in late 2020. Sony (6785) shares reacted positively seeing a 3% gain from the announcement.

Cryptocurrency News

  • Blockchain technology has recently been used in the Supreme Court of Russia. Kaspersky Labs technology was used for voting on issues presented to the court.
  • The Escobar family claim that they know who Satoshi Nakamoto is: Yasutaka Nakamoto, a relative of Dorian Nakamoto. The claim looks unlikely and appears as though it could be another publicity stunt by the Escobars. This stunt alongside their recent Escobar Inc. smartphone scam.
  • Mark Karpeles, the ex MT Gox CEO, has had his convictions upheld by the Japanese courts. He was sentenced with data manipulation in order to harm customers and has received a sentence of two and a half years in prison. This sentence stems from the MT Gox hack (2nd incident separate from the 2011 troubles) of around 850,000 BTC.

This external intelligence report was written by Oliver Page, and commissioned by AAX, for marketing and educational purposes only. The views, analyses and projections are based on the author’s independent research. The report should not be taken as a form of investment advice.

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