Bitcoin enters short-term correction mode
In our previous report, we showed you how Bitcoin tried several times since mid-October to break out above its all-time high of 64,850 (April 2021), but has been unable to hold above it. Not surprisingly, overhead supply created from Bitcoin’s inability to hold at new highs finally sparked a wave of selling that led to a short-term correction last week.
BTC undercut key, intermediate term support of its 50-day moving average, but quickly stabilized above support of its prior swing low from Oct. 28 (just below 58,000):
The selling pressure started kicking in on Nov. 15 and BTC tumbled 16% lower over the next three days. Long-term “buy and hold” investors suffered significant drawdowns in their portfolios, but our proactive position management strategy enabled Morpheus Crypto members to stay out of harm’s way!
Whenever we detect the crypto market may be entering correction mode (within a bull market), we proactively tighten stops and avoid new trade entries to protect profits and minimize risk until the market finds a short-term bottom.
In this case, we detected bearish price and volume patterns right before the Nov. 15 sell-off began and proactively tightened stops in all open positions in the crypto portfolio. This proactive position management strategy paid off well, as the cumulative return of our Morpheus Crypto portfolio dipped just 1.2% for the week—despite much larger drops in BTC, ETH, and most altcoins.
By Nov. 16, the crypto portfolio was back to 100% cash and we began looking for new, low-risk trade setups after Bitcoin stabilized above the 58,000 level.
Such market “resets” are fantastic opportunities for short-term swing traders like us because it is easier to find low-risk entries and profitable trading opportunities.
Ethereum short: +23% gain in just 24 hours
Previously, we showed how we scored a +24% gain in MANA in just 24 hours. This past week, we similarly scored a quick gain of +23% in 24 hours with a well-timed short of Ethereum (ETH).
While tightening stops ahead of the sell-off on Nov. 15, we entered a bearish position in Ethereum through buying ETH3S, an inverse crypto ETF (on KuCoin) that moves higher when ETH moves lower (with 3x leverage).
Our entry and exit points on ETH3S are shown below (the underlying ETH asset correspondingly moved in the opposite direction):
We typically aim for swing trade setups with an average holding period of several days to weeks. However, our plan with the ETH short trade (via ETH3S) was to score a quick gain from a rapid correction in the market.
Since this was only a normal correction within a healthy bull market, we were not interested in being short for more than quick, countertrend momentum trade.
We will focus on the short side when the crypto market eventually enters a bear market cycle, but normal pullbacks within the current bull market are simply buying opportunities.
Netvrk setting up for another breakout to new highs
Our remaining position of NTVRK hit its tightened stop and locked in a gain of +31% on Nov. 16. With red-hot action in the metaverse sector now, we remain quite bullish on NTVRK as an “undervalued” play. However, we wanted to avoid potentially sitting through a steep correction if Bitcoin sold off sharply.
As such, we immediately began looking for a potential re-entry point after Bitcoin found a short-term bottom and NTVRK continued showing relative strength. We re-entered NTVRK on Nov. 20 and it is now poised for a breakout to new all-time highs:
Our re-entry into NTVRK on Nov. 20 is currently showing a gain of +14%. After it breaks out to a new high, we will trail a stop higher to lock in gains and maximize profits as the price moves higher.
Buying the Loopring (LRC) pullback
Since breaking out of its base on Oct. 28, Loopring (LRC) rocketed nearly 700% higher in just 2 weeks! As one of the top performers in the first half of November, it has been on our watchlist for potential pullback buy entry. After an 8-day pullback from its high, LRC came into support of its rising 20-day exponential moving average on Nov. 18. We bought LRC when it bounced sharply off support of its 20-day EMA the following day:
Our LRC stop of $2.20 is just below the 20-day EMA support level. We’ve got a relatively tight stop because LRC could fall much further if the 20-day EMA fails to hold.
Regardless, the initial pullback and reversal off the 20-day EMA was our ideal entry point to catch a potential resumption of the strong uptrend. Without taking a shot on that pullback, we would risk missing out on another big rally higher in LRC.
Weekly Battle Plan
We selectively entered a few new positions in our Morpheus Crypto portfolio after BTC stabilized above the 58,000 support level. However, the portfolio is still 65% cash because we would like to see more bullish market confirmation before adding additional risk exposure.
Now that BTC is taking a rest and may be entering into consolidation mode, we may start seeing funds rotating from Bitcoin into the altcoin market. The Bitcoin Dominance Index (BTC.D) remains near its recent lows, which also points towards strength in the altcoin market.
Overall, we remain short-term bullish as long as BTC holds the Nov. 19 low around 55,600.
Nevertheless, we will promptly become defensive and shift into capital preservation mode if that low fails to hold.