BITCOIN

“A bubble is a bull market in which you don’t have a position.” Eddy Elfenbein.

“A market is never so high that in can’t go higher.” An old trader.

There is an impending volatility storm that will engulf us next year of which late 2017 has only been a prelude.

Bitcoin is a good place to start given all the euphoria and warnings that are taking place. I downloaded BTC-USD from Yahoo and here’s the chart showing my main indicator:

The red line is the raw indicator and the blue is the raw smoothed. Crossovers below the purple line (above zero) or above the purple line (below zero) indicate reversal but once the indicators exceed the purple and green lines other factors come into play.

There is a crossover on November 16^th (first arrow) which is the signal to go long. Then on November 24^th (second arrow) the smoothed indicator breaks the black horizontal line (a lower high could indicate a reversal) and the green line (indicating a trending market). When the indicators exceed the green line, we look at a shorter-term indicator for both adding to a position and the sell signal.

Here’s the short-term indicator:

When the main indicator is trending above the green line, the sell signal is the second crossover of zero by the short-term indicator. Today’s action has given us our first crossover of zero. Now, given the volatility of this market, this first crossover could become a real doozy and cause weak hands to fold. I think it would be a mistake.

Under this system, when the red and blue lines turn back up and intersect that is the point to add to your position (if you are into pyramiding).

Related to Bitcoin, I saw an article yesterday recommending selling out of the Bitcoin Investment Trust (GBTC). If anyone owns this, I think it’s premature advice - even given its drop today.  Here are the charts:

On November 27^th (arrow), there’s a crossover above zero indicating another uptrend cycle and an indication to initiate a position, if you're not in the market, or to add to an existing position if you are. As the red and blue indicators have exceeded the green line, we need to look at the short-term indicator.

There have been no zero crossovers yet but we are getting a sharp pullback. If you are in GBTC for the longer term don’t get shaken out of your position. The next red and blue crossover will be a time to add to your position.