Should I buy the retracement?

What’s the market sentiment after 2 days in the red? A return below $39,000 that stings for most investors, especially buyers of the $40,000 mark! Let’s take a look at the state of the market in the second half of January!

Warning This article does not constitute investment advice or an invitation to invest. It is for information purposes only. You are solely responsible for your trading and investment decisions.

When it comes to trading, it’s essential to at least secure your winnings in a cold wallet. For an easy-to-use cold wallet, we refer you to D’Cent that we presented here. We thank them for sponsoring this column!

First alert!

The reintegration of the range on January 12 heralded something simple. We were soon to return to the bottom of the range, shown in red on the chart below. A week later, we did just that, retesting what was still support last Friday.

However, this $40,000 zone did not last long. At the start of this week, we broke to the downside. Users of Grayscale are massively selling their Bitcoin, as their platform fees for ETFs are much higher compared to others such as Blackrock.

The two possible scenarios are now quite clear. The question remains, which one will be favoured?

The possibilities for Bitcoin

Reintegration of the range

The first is bullish, and presents the opposite situation to that of January 12. In other words, we’d be making a false exit from this range, which we’ll be re-entering.

The green scenario would apply in this case, with a quick return to $41,800 to liquidate the weekend sellers followed by a validation retest of $40,000. This event would then take us close to the $44,000 new high for the next few weeks.

Resistance validation

In the more bearish case, we should then retest our support turned resistance (in progress) to get rejected one last time.

This scenario would have a clear short-term target of $38,000. However, if we take a step back, the next bearish targets are $33,000 for the nearest liquidations, and $30,000 for the support that must hold.

Opinion and conclusion

Liquidations

Liquidations are important to see where the market can go and how far. On our way up, we were attracted by sell-side liquidations to the upside. From now on, there’s quite a wall to liquidate, especially on Binance up to $38,000…

Bitcoin spreads

Spreads are the difference between the price of Bitcoin spot and futures (with and without leverage). In general, bullish sentiment is reflected in a positive spread, and vice versa! We can see that when spreads are positive, the market weakens, and when spreads are negative, the market rises! This reflects a market that is more sold than bought on the futures. What we’re aiming for is a negative reversal in these prices, in order to hope for a bullish reversal later on.

Conclusion

The need to fall was inevitable, even in a bullrun, retracements of 10-15% are to be expected. Here, we’re still a long way from that; a retracement of several tens of % seemed logical in the bear/bull transition. With each transition, we should expect a retracement of between 30% and 50%. Here, we’re almost at 30%, so it wouldn’t be surprising if we were to validate $38,000 at some point! Beware, however: a return above $50,000 followed by a 30% retracement is still a possibility. It’s difficult to position at the moment. Spreads, which are currently a little negative, could predict a bullish comeback in the coming weeks all the same!

I hope I’ve helped you with my opinion of the week’s scenarios. I’m more vague than usual, as I’m more uncertain, although I could see a sell-off up to the short-term $38,000. In any case, a really good DCA wouldn’t happen before $30,000. On the other hand, someone who wants to take advantage of the next bullrun with objectives close to $100,000 would certainly be right to create a plan in which all retracements over 15% are to be bought.

Have a good week everyone, and see you next week for more analysis!