Bear Market, or Correction 2
The aim of this article is to write a follow up to ‘Bear Market, or Correction’ written three months ago now. In that previous article, it was my intention to show that a correction, that is perfectly normal in speculative markets, need not be thought of as a ‘bear market’, where Bitcoin is supposed to descend into its dreaded ‘heart of darkness’. It was my aim to show that this kind of language is loaded and tends to exaggerate what may be developing - like a kind of ‘bogeyman’, people can be scared into thinking an 80% price correction and a multi-year ‘bear market’. There may at first be the refusal to look the imagined horror squarely in the face, only to be followed on by the flip into a too bearish stance once an extended correction became undeniable [in typical schizoid bear/ bull market fashion].
However, if such phenomena as extended bear markets/ cycles belongs to the past [as argued in previous articles], all that is happening here is a certain ‘orthodoxy’, or market psychology, playing out - people are locked into a narrative [a paradigm by which chaos is made intelligible] but a narrative that may have become outdated as the market has moved on. Of course, this article is not for those of the persuasion that the market should be marketed, but for those that think the market should be analyzed insofar as more opportune entries and exits can be found by avoiding the emotional excess of exuberance on the one hand, and panic on the other.
At the time of writing the first article on ‘Bear Market, or Correction’, BTC was at 44K after a solid bounce after the 55% correction from the previous ATH. This 55% correction was the writing on the wall, as far as the parabolic rise was concerned, for even though price went on to make a slightly higher high recently, longer-term indicators clearly showed momentum had rolled over. Three months later after the first article, and six months later after the first parabolic high, price has essentially gone nowhere. What should strike any student of the market here as interesting is that the price dynamic, as compared to previous ‘cycles’ has changed quite radically.
And predictably so, as I first outlined in 'Cycle Theory Revisited', for this was written in response to the 2019 mini-parabolic rise and fall that bucked the trend of nice neat multi-year cycles, where the cycle was to build up a head of steam before the long looked for ‘blow off top’. This anomalous behavior [problematizing the theory] was only to be repeated again with the market racing away on a parabolic rise at the end of 2020 and into the start of this year. This was more in keeping with the 4 year cycle narrative, and yet once again a premature correction without a blow-off top [which at that time this was dogmatically looked for].
The prediction of the articles was price would roll over on both macro and technical considerations - an increasingly liquid/ mature market would see a breaking up of the old grand cycles, and long term momentum indicators showed momentum rolling over… before price actually did. Predictably, no blow-off top. Of course, this article is not a post-mortem of the top. Insofar as I’m describing the recent past, it’s to throw doubt on the commonly accepted narrative/ paradigm that was then in sway. It’s also about looking at how recent price dynamic [which was predicted] might help us in projecting price development going forward; or, in practical terms, how this correction need not be thought of as a ‘bear market’ with all the perceived horror that might come with that.
The first thing that should strike the reader on viewing price in the lower chart is the irregular pattern. As mentioned earlier, there is no orderly and cyclical march up that culminated in a blow-off top. Rather, we see something a lot more fragmented - it’s as if the so-called cycle has broken up. When we talk in self-conscious and critical terms of theories it should always be with this ‘as if’ in mind. The theory is always about best saving/ explaining the appearances, and the last thing you want is to be locked into a redundant theory that, in looking backwards, ignores current developments. Of course, it is human nature to do so as we are after all creatures of habit, and habits are as much mental as they are otherwise.
What we see in the chart is a series of mini-parabolic spikes followed on by corrections. In cyclical terms, as compared to previous ones, price is ‘all at sea’. The theorist [and we all have a theory at work in our minds] should find this problematic, and then look for some solution. An argument for the apparent disorderly price action [as compared to previous] is a maturing market - it’s a general principle of markets that increasing liquidity equates to decreasing volatility, and this is in fact what we are seeing in the ‘cyclical’ sense given the increasingly erratic price dynamic. All of this is of course in perfect keeping with the LGC channel, which is a very long term model [so-called cycles apply to the more medium-term time-frame]. The LGC looks fine here, what doesn’t is multi-year cyclical theory. And if this theory is problematic, why the concern about a multi-year bear market; for if you reject multi-year cycle theory, you can also reject the impending ‘bear market’ of over 80% price declines. The two are tied at the hip. Enough said on the ‘bogey-man’ of ‘multi-year cycles’, time to move on, theoretically, to diminishing ‘cycles’.
With a maturing market, we can start to apply more conventional tools to analyze that market. Long-term moving averages to which price tends to return, the use of the fib tool, and the appropriate momentum indicators are the conventional tools to apply to an increasingly conventional market in the process of going mainstream. The following chart gives a more pragmatic analysis of the chart along these principles in contrast to the theory-laden observations of the moon or doom charts you see so often on Crypto Twitter [which is primarily a marketing platform].
At first glance, the viewer may baulk at this realistically depicted chart [technical analysis as risk analysis] with what looks like a double-top contained by the LGC, a low [4 year] moving average and consolidating momentum on the indicator, but on a closer viewing it is not that foreboding.
A real correction, into the early part of next year, of the recent parabolic move up would give 25K, and have price meet the 4 year moving average. It would also see the MACD well consolidated for another move up in the second half of the year. The crucial point here is that even if the correction were relatively severe for those that were expecting much higher prices and sooner, it would [or should] be a relatively quick correction. And once corrected, price is likely to make another run to new ATHs in the course of next year - no multi-year ‘bear market’, but shorter speculative episodes aka diminishing market ‘cycles’. A couple of further price scenarios going forward here [an ascending triangle, and a head and shoulders].
Zooming out [where TA always has a better probability of playing out], we have further ‘evidence’ of price going no lower than 25K in seeing that all run-ups, in the aggregate, have previously corrected 38% in real terms.
Of course, it’s in no way my intention to be dogmatic on these price calls… how could I be when no-one has access to that proverbial crystal ball. The point of such projections is one of risk analysis - this is what price could realistically do, and even more importantly [given the context of this article] this is the base/ support we could be looking at. The aim here is to provide an analysis that is neither too bullish, nor too bearish, for, as mentioned earlier, there is the tendency of chartists to flip overly bearish once their previously over-bullish projections have lost credibility.
Yes, my observations are also theory-laden, for this is something we can not avoid. But the LGC theory, which influences the observations and predictions, has also been subjected to crucial tests, which it has so far passed. It also remains falsifiable [the potential to be invalidated] with a break of the channel to either side. Where the LGC has the higher probability of holding, the targets given in the more specific TA on the shorter term have a probability of actually playing out to a lesser degree - they are fundamentally there as a technical/ risk analysis of price, and an analysis that also looks to outline a probable level of support… at a time when many may once again be howling for ever lower prices.
For more on investing and trading the alt coins, feel free to enquire via a DM to my Twitter account - @davthewave
Until next time,
Stay [relatively] safe out there,
Dave the Wave.