DEFCON Continued

Dear Readers,

Given that the correction has indeed continued, and hitting ‘DEFCON’ levels as outlined last fortnight, it seems best to do a follow up article to the previous one. The point of the previous article was to manage [or preempt] the burgeoning bear psychology in the market. As we all know, bull markets like to climb a wall of worry, and it is by keeping a firm eye on the technicals that this ‘worry’ is managed.

And so first to the development on the chart since 2 weeks back:

At the time of writing A DEFCON System to Manage the Bear Psychology, price fell through DEFCON 5 [not much to write home about]. It subsequently fell through the ‘DEFCON 4’ level [previous resistance come support], where one should become more alert to the possibility of losing the bull trend while keeping a bullish bias on the basis of that longer-term trend. It would only be a crossing of the upward multi-year trendline, in a remarkably technical market [as opposed to parabolic], that a cause for more serious concern would eventuate in ‘DEFCON 3’.

As you can see plenty of technical room to the downside [100k odd], and yet the market tends to panic with these thousand-dollar moves. These are in real terms small percentages. This is something we can see at a glance on a longer-term multi-year chart, which should function as our instruments for orientation - without them we are flying blind.

It is this longer-term chart that is going to more interest the investor every day of the week, even as the temptation is to focus on the daily volatility. In my opinion, your competitive advantage in the market place is your ability to keep focused instead on the larger trend of the rational technicals. Daily volatility only feeds into the emotions of the mass bull and bear psychology in the market - we get overly excited on the upswing, and then overly anxious on the downswing, where the market plays with the emotions as a cat does a mouse.

Zooming in again:

We can see the main technical factors [bold dashed lines] between which price is currently tracking. Look for the lower multi-year upward trendline to hold [also a 38% real retracement of the move up], and the shorter term downward diag of resistance to break as the longer-term trend re-asserts itself.

If instead, given the future is not certain, the trendline is broken and ‘DEFCON 3’ ensues, we’d there have some cause for alarm as to the greater trend in danger of lapsing. Even there though, a process would or should be involved, like a pendulum swinging, where the pendulum registers on the border between bullish and bearish territory, i.e, no cause for panic.

And of course, the longer-term investor, with a longer-term time horizon, would be fine with an even greater correction. With the model of the LGC [Logarithmic Growth Curve] in mind, something that incorporates any multi-year cycles, the continued capitalization of BTC as an alternative currency can be expected [digital gold]. There is also the theory of a maturing market, which both explains and predicts current and future price action: explains the remarkably technical nature of the ascent so far, and predicts a less dramatic decline [that followed previously on the more parabolic price actions].

That said, my ‘bias’ or rather theory and prediction, is for further upside in the 4th quarter after this period of consolidation has run its course. The main point of these ‘DEFCON’ articles has been to outline the parameters by which this outlook would be invalidated; to sketch the possible developments, where the cyclical multi-year trader that entered at lower levels [as opposed to the investor], would justifiably begin to get nervous.

Until next time,

Stay [relatively] safe out there,

Dave the Wave.

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