Spit the Bit? Bitcoin Reaches Dangerous Manic Stage

 | May 30, 2017 | 2:00 PM EDT
  • Comment
  • Print Print
  • Print

There are few guarantees in the business of financial speculation, which is the business the crowd is in when justifying the reasons not to reduce exposure into all-time highs. Typically, bull markets end with a focus on a narrow sector of stocks, or in some cases assets. Remember the Nifty 50's, Dotcom's, and Mortgage Lenders?

While there are several assets to choose from in the current environment of fearless certainty that markets can only rise, few are as thin as the blow-off in Bitcoin. That said, while this asset has entered the parabolic portion of its mania, where prices move vertically, there is a recognizable pattern of the crowd's behavior that is able to be forecast. Let's look.

Click here to view the chart in a new window

This is a chart of Bitcoin, represented by the Bitstamp exchange prices, using weekly bars. It shows the labeling of a map toward the $3,500 +/-$500 target zone, which should be seen in this calendar year, as long as $1,400 is broken below. Until then, our DSE's (decision support engine) pattern recognition algorithms strongly suggest this labeling.

Next, wave 4 should see the price high near $2,750 give way to a corrective decline toward $1,750 +/-$150, before wave 5 takes prices into the $3,000s -- perhaps the mid-to high $3,000s.

If we take the liberty to forecast what a historically orthodox finale might look like, chart two, below, anticipates the path with DSE's red arrow. Then, the goal is to track where prices are within the decline in order to position for the final thrust to new all-time highs. While the rally will be profitable for those with the stomach to ride it, the exit into wave 5's maturity will be key to make the ride worthwhile. If profits can't be captured, the aftermath of a parabolic rally will be very painful.

Click here to view the chart in a new window

Chart three, below, zooms in on the forecast of wave 4's structure, which is likely two-thirds complete. The pattern of decline should be down/up/down, and the labeling in this third chart shows the down/up pattern has taken classic form, according to Elliott Wave Theory.

Click here to view the chart in a new window 

Next, wave C down of wave 4 down should break under $1,850, and go no lower than $1,450, with $1,800 as the highest probability support level.

Members of our live-market Trading Room and DSE Alerts services have been well informed of these gyrations, which now suggest awaiting the coming decline's target before adding to any long exposure. Then, after $2,800 is exceeded, DSE will go on red alert for the big exit, and trail protective sell-stop orders behind rising prices as wave 5 burns itself out in a blaze of glory.

Historically, news will arrive from somewhere in the $3,000 area to justify the largest decline in Bitcoins since their birth. But we will address that when needed.

For now, the message of objective analysis is to avoid buying around $2,300, and await a test of $1,800. Then, enjoy the fireworks and sell into the lunacy that the $3,000 will bring.

For updates on this analysis, as well as other trading opportunities, try Ken Goldberg's DSE Alerts service for free for a couple of weeks, or contact him at support@dsetrading.com

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.