Bitcoin: On March 24, 2022 April CME Bitcoin futures generated short and intermediate term buy signals.
In my research piece of November 21 2021, I indicated that CME Bitcoin Futures had generated a short-term sell signal on November 17. Please see the note of January 16 below. Since then Bitcoin has fallen sharply and made its major low of $32,855 on January 24, 2022. A higher low of 34,295 was made on February 24. Both lows coincided with the two major lows made by the S&P500 and Nasdaq 100.
The short and intermediate term buy signals generated this week are the first of 2022. The moving average set up is slightly bearish with the 50-day moving average below the 100-day moving average of 40,701 and 46,933 respectively. However, the good news is that the 100-day moving average of 46,933 remains above the 200-day of 45,783. In my analytical process this means that Bitcoin Futures has not experienced anything more than a garden-variety correction.
The recent COT report reveals that the large Bitcoin Futures contract in the Leverage Fund category has 6,807 contracts short and 1,159 long. The micro Bitcoin contract reveals the opposite pattern. There are 10,009 contracts long and 8,642 contracts short in the Leverage Funds category.
On Friday, April Bitcoin Futures closed at 44,655 which is below the 100 and 200 day moving averages. These averages may provide temporary resistance, but since the equity market is likely to continue moving higher, Bitcoin will follow.
As pointed out in the January 16 note, there are two major tops on the continuation chart. The first, 65,520 made on April 14, 2021 and the second at 69,335 on November 10, 2021. Double tops made several months apart can be double trouble. This is formidable resistance and when prices begin to approach these levels, speculators with long positions should begin to lighten up. It is mandatory to have a position management strategy that enables you to stay in the trade, but with less risk.
To read about my analytical process for stocks, visit online booksellers, Amazon and Barnes and Noble and enter the title: How I Trade Stocks by Garry Stern.
From January 16, 2022:
In my research note published on November 21, 2021, I said that December CME Bitcoin futures had generated a short term sell signal on November 17 and that it would generate an intermediate term sell signal if fell below $52,392. On Friday January 14, 2022, the January contract closed at $43,120 and February, 43,245. Both contracts made new lows for the move on January 10 ($39,470 and $39,625 respectively). On the continuation chart, the January 10 low was only fractionally above the August 6, 2021 print of $39,910.
In the November 21, 2021 note I said: “The decline should be contained at the 48,170 level, but a move below this would be very negative.” Since then Bitcoin futures continue to trade in a weak fashion and the daily moving averages are moving into increasingly negative territory. As of the January 14 close on Friday, the daily simple moving average set-up is as follows: 10 day 43,526, 20 day 45,837, 50 day 52,339, 100 day 52,326. This week or next, the 50 day moving average will cross below the 100 day. While this is negative, it does not tell us anything about the longer term trend. However, for Bitcoin to regain its upwards momentum the daily moving averages just cited must reverse their current bearish configuration into a bullish one. This takes time.
Of greater concern are the two tops made in CME futures approximately seven months apart on the continuation chart of 65,520 on April 14, 2021 and 69,335 made on November 10, 2021. In my view, the $65,000 area is likely to be formidable resistance in the future. As we have seen in the gold market, an all-time high can last longer than anticipated. I thought that gold would would have taken out its August 2020 high by now. However, it has been range bound and at this juncture is unable to mount a sustained move higher. Bitcoin may follow this pattern.
The latest Commitment Of Traders Report for CME futures ( January 11) reveal that “Leverage Funds” hold 1,464 contracts long and 7,159 short. Therefore, if a rally ensues there is fuel for a move higher if shorts capitulate. What might signal a reversal in trend? The 20 day SMA has contained all rallies since I announced Bitcoin’s sell signal on November 17, 2021. This is the average to watch.
If the nearby CME Bitcoin contract is able to make at least one daily low above its 20 day SMA, a continued move higher is more than likely. As of January 14, the 20 day moving average stands at $45,837. According to my calculations for the nearby CME futures contract to breakout above the 20 day SMA using January 14 data, I project a price high on that day of approximately $48,541. If the 20 day SMA declines further from here without futures making a low above it, the target high would be lower as well, perhaps substantially. If the nearby CME contract is unable to make a low above the 20 day SMA, Bitcoin will continue to drift lower. I will update this projection in the future
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