Bitcoin Looking Super Bearish

18 באוג׳ 2021

For the record, Librehash is still as bearish as it gets on Bitcoin (at the time of writing).

Skipping the long introductions, let's just hop right into things and see what's going on from an aerial perspective.

Bitcoin Price Analysis

We're going to start with the Librehash Reversion Ribbon V2 overlaid on the chart (see below).



In the chart above, we can see that the Histogram is expanding (to the south). That means that the bearish divergence between the two lines that form the ribbon are expanding (signaling an increase in bearish price activity & sentiment in the markets).

Also, the ribbon itself continues to decline from its peak height, reached on July 31st, 2021.

Exponential Moving Averages

To start off with, we're just going to look at the EMA-12, EMA-26 and EMA-50.

Below is a quick legend:

EMA-12 = Purple

EMA-26 = Green

EMA-50 = Golden

In the chart above, we can see that all three aforementioned exponential moving average periods are stacked on top of one another ('fastest' to 'slowest'), which indicates that this bullish signal for Bitcoin (on the daily resolution), remains in tact.



The EMA-12 is clearly serving as support in the photo above at the 45.3k mark. As to how long that will last for remains to be seen. The 'faster' the period, the weaker the resistance / support when it comes to EMA lines.

Below that is the EMA-26 at the 42.2k and the EMA-50 resting at \40k flat (just about).

Volume Analysis (Examining Divergence)

The most troubling metric here is the clear volume divergence (which can be seen obviously from the daily and weekly resolutions).

Let's take a look at the volume divergence on the daily resolution first (below).



As we can see, during Bitcoin's +23% price increase, the volume decreased day over day. Its worth noting here that the chart above is the 'BTC: Index', which is the TradingView market that includes aggregate data from all legitimate data sources, amalgamated into one 'average'.

Now let's take a look at what the volume reading gives us on the weekly resolution.



Apart from the divergence, there are a few other observations worth making here as well.

1. Pay close attention to the color of the volume candles (at the bottom of the chart). A major indicator of a bear / bull market is the size of the buy / sell volume candles. For example, in a bull market, we should expect the green candles to be taller than the red candles. Conversely, in a bear market, the red candles should be taller than the green ones (indicating increased trading activity during sell-offs vs. 'bull runs'). Above, we can observe that, over the past couple dozen periods or so, the sell volume has far outstripped buy volume. This is pretty significant.

2. Volume has been declining over a series of weeks, which is also significant. Given the other observations we've made here, it is likely that when the volume does increase (significantly for any reason), this will likely lead to a major decline in the price

3. Additionally, the fact that the price has been able to increase by 20-40%+ during period where the volume is declining indicates that the sell pressure is declining vs. buy pressure increasing (i.e., bears taking profits and likely waiting for another opportune time to short / throttle the price back down once again)

In conclusion, everything we see above (related to volume) is bearish. Resoundingly.

Librehash Trending MA

If you're a Librehash subscriber, you likely have never seen this upcoming indicator before. This is one that I've been working on "in the lab", since it was brought to my attention by a user that the 'Librehash Aggressive MA', was failing to generate valid results on shorter time frames.

This motivated me to amend the indicator to be more sensitive to varying market conditions while retaining consistency in its 'readings'.

Below is an example of what this 'Trending MA' looks like when overlaid on the daily resolution.



There's a lot going on here, so I'll try to dissect the most relevant bits for everyone.

1. We use the 'hlc3', which stands for the "high" + "low" + "close" divided by 3, rather than the ohlc/4 typically used (I find this to be a more accurate reading).

2. The 'Hulls MA' is used vs. the exponential moving average, for specific reasons. For those wondering, the definition of the 'Hulls MA' (from TradingView), is that its an 'moving average', created, "For the purpose of reducing lag, increasing responsiveness while at the same time eliminating noise. Its calculation is elaborate and makes use of the 'Weighted Moving Average (WMA)." It retains similarity to the EMA since it also, "Emphasizes recent prices over older ones, resulting in a fast-acting yet smooth moving average that can be used to identify the prevailing market trend". The final statement amde about this indicator is that, "It can also be used for entry and exit signals. The indicator is mostly used by swing traders and by long term traders in combination with other signals and analysis techniques."(source: tradingview.com/scripts/hullma/). One of the best parts about this indicator is that it smooths itself, whereas we typically use EMA indicators to smooth out other signals (i.e., 'Balance of Power' to form the "Librehash Balance of Power RSI", for instance).

3. We restricted the length to '9' since we're on the daily resolution.

4. The 'purple' candles are colored specifically to signal that the current trend is going to continue; I added this in the indicator's design to help traders decide whether they want to remain in a trade or exit; often times when we're in a trending trade and we see the price start to move in the opposite direction, we have a tendency to panic and just salvage profits. While this is not an explicitly bad idea, this is an action that can curtail potential profit potential. (this is remarkably accurate).

5. The little 'crosses' above (or below) candles, signal an impending reversal (these tend to be remarkably accurate and often times beat the 'color change' of the line).

6. The 'Trending MA' itself is designed to keep traders in trades (even when there is an uptick in volatility, sideways price action [i.e., consolidation], etc.)

Zooming in slightly, we can see that the indicator is currently signaling a 'bearish trend' emerging (remember the purpose of the indicator is to mark changing trends, not signal "buy" or "sell"; indicators that claim to do such a thing are snake oil - treat them accordingly).

This indicator marking is even more pronounced on smaller time frames. Below is the indicator overlaid on Bitcoin's price on the H8 resolution (8-hour time frame).



Balance of Power RSI

Bringing this one up because its even more bearish than it was when we originally looked at it in the previous price analysis we conducted a few days ago.

Let's check it out (below; daily resolution).





In the charts above, we can see the Balance of Power RSI has been plummeting on the daily resolution. This should be of special concern to bulls, because this indicates that the sell pressure has been increasing over the past few weeks.

However, we can see the price increase (significantly) over the same time frame. These two facts together simply mean that 'whales' (for lack of a better term), are likely selling into the artificial bullish price action facilitated by a lack of heavy selling (like what we saw back in May 2021).

Conclusion

There are other things that can be said about the price if we want to nitpick, but overall, everything I can see on the charts (daily and below as well as up to the weekly resolution), are screaming bearish price action impending.

If I'm wrong about this, I would be really shocked and it would force me to go back to the drawing board with a few things to reconsider things that I previously assumed to be fundamental truths about trading.

This price analysis will be concurrently published on TradingView (haven't gotten around to a ton of those lately!). Looking to be more consistent on there too. If you're interested in checking that out, make sure to visit tradingivew.com/u/librehash (our profile); and also check out our other social media channels as well.