Yesterday's publication of the from the Fed's December meeting revealed that Federal Reserve policymakers are further along on the path to higher interest rates than investors realized.
After the release, traders and investors cashed out of a wide range of asset classes including formerly high-flying technology stocks. Even Treasuries were of no use to anyone looking for a safe haven, current yields pale in comparison to the expected higher interest rates.
Therefore, sovereign bond issues with lower maturity dates outperformed among Treasuries, since the short-dated bonds wouldn't lock traders into a lower payout schedule. The , which should be the immediate beneficiary of higher rates, remained flat. Investors are also betting on the ECB tightening policy shortly.
The outlook for higher interest rates didn't even boost which some have been touting as the new safe haven, potentially replacing 's status in that position.
But the cryptocurrency doesn't provide a payout. As such, Bitcoin was lumped in with non-yielding gold during the selloff.
Unappealing fundamentals notwithstanding, Bitcoin's decline comes at a technical juncture that could be equally ugly.
The number one crypto token by market cap extended a downside breakout of a massive H&S (head and shoulders) top, a pattern named for its shape, which tracks a reversal in the trend based on the price highs and lows.
When prices fall below the neckline, the trendline that connects the recent lows of a sideways move is an ideal showcase for how supply is gaining on demand. With more sellers than buyers, traders expect the momentum to resume in the same direction, in this case lower.
Other clues to a reversal: the price fell through 200 DMA support shortly after the 50 DMA cut through the 100 DMA. If the 50 DMA fails to find support above the 200 DMA, it will trigger a Death Cross, a highly negative term even fundamental analysis purists are familiar with.
Notice, however, that there have been fake-outs along the way. Savvy traders would employ filters to lower the odds of a bear trap. A close below the $42,000 level will increase the chances of another bearish move, while a close below $40,000 will reinforce bearish entrenchment.
The H&S's implied target puts Bitcoin on track for another technical milestone.
If the price falls below $29,000, it will have completed a mega double-top. If that follows through, believe it or not, Bitcoin will be on a path toward $0.
Trading Strategies
Conservative traders should wait for the price to close below $39,600, then wait for a return-move to retest the pattern's integrity before risking a short position.
Moderate traders would wait for the price to close below $42,000 and then wait for a corrective rally to demonstrate resistance before committing to a short sale.
Aggressive traders could enter a contrarian, long position, counting on a bounce as the price nears the previous low of Dec. 4 at $42,101. This is a risky position, but aggressive, savvy traders who know how to manage risk might take advantage of a dip that nears support, a pretext for a return move.
Trade Sample - Contrarian, Aggressive Long Position
- Entry: $42,500
- Stop-Loss: $42,000
- Risk: $500
- Target: $45,000
- Reward; $2,500
- Risk-Reward Ratio: 1:5
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