Bitcoin: Overlooking Macro?

3 avr. 2022

The Bitcoin break out above the 45K resistance is far from impressive and while the retrace back into the previous resistance (new support) may offer some potential opportunities, it is very important to not lose sight of the macro fundamental picture.

For those who do not understand how interest rates work and the role of the Federal Reserve, you do not understand the risks that you face in the current environment. The 2 yr and 10 yr note yields are inverted which typically signals a coming economic recession. Who cares right? We trade charts! I am all for relying on price action, but considering the macro picture can be very helpful in terms of choosing what strategies to employ, along with shaping REASONABLE expectations for risk and profit targets.

In case you haven't noticed, (still obsessed with 30 min charts maybe?) Bitcoin is correlated to the S&P. The recent rally in the S&P is highly vulnerable and not sustainable which means Bitcoin is in the SAME situation. How is this information helpful?

1. Shorter time frame strategies (swing trades, day trades) make more sense because they have smaller profit targets and should have much less risk exposure (as long as you are following your well defined plan).

2. The Federal Reserve is expected to raise interest rates further and somewhat aggressively (at least more than 50 basis points). A rising rate environment is the opposite of an easy money speculative one. It takes many months before the effects of such rate increases are felt by the market. This MEANS: rallies in this environment are likely to be LIMITED. Investing in growth stocks (tech), small caps and highly speculative instruments like alt coins and penny stocks carries a very high amount of risk.

3. Bearish setups and resistance levels will likely be more attractive opportunities, (especially selling false break outs). Bullish setups and rallies are still possible, but must be considered MUCH more selectively. This means WAITING for specific levels and confirmations. Hoping positions back (a very bad habit reinforced by the easy money environment) will be a very expensive lesson for those who don't respect the risks.

As far as Bitcoin levels, while the 42 to 45K new support (previous resistance) is trying to hold, I have little confidence that this "bullish trend" will continue. Price is still within a general resistance area, and extremely vulnerable. Overall structure still shows a lower high consolidation which continues to favor a 35K support test and potential break. If I am going to take any swing trade risk, it will be around the 35 to 38K area support. That is being selective.

I can show you how to identify levels and quantify risk but I can't teach you how to be PATIENT. The charts can only help to a point in terms of referencing risk and recognizing infrequent opportunities, but the real skill here is WAITING, not charting. The herd react, it doesn't wait.

Thank you for considering my analysis and perspective, I hope you find it helpful.