Bitcoin: Following The S&P 500 ?

23 Jan 2022

Bitcoin broke the 40 to 38K support over the previous week which confirms the bearish momentum is still intact. 28 to 30K is the next major support level. Unless it is long term inventory, buying into supports in this situation high risk since they are likely to break until price proves otherwise. Is it a coincidence that Bitcoin sold off at the same time as the S&P?

The long term trend for Bitcoin is still bullish, and 30K would be an ideal area for the current bearish structure to possibly consolidate and reverse. Until price action can provide such evidence, it is reasonable to anticipate bearish momentum to continue (resistances should hold / supports should break). I do not short Bitcoin, but for those who are open to such risk, the 38 to 40K area is now the new resistance. IF price can retest this area and produce a sell signal, that would be an ideal setup for a swing trade short. This scenario can take a week to unfold.

As far as inventory (dollar cost averaging), 30 to 35K is a very attractive area to add, BUT as I explained in a previous article, strategic sizing is of utmost importance. Getting too big too fast will ruin your account. Buying inventory relies less on the chart analysis and more on your purchasing schedule and size. For example, if you made your January purchase, then you do nothing until your next purchase date next month. You follow the schedule. If you are extremely aggressive and can't resist such low prices, then at least take a smaller bite instead of your usual size. I would normally say "skew larger near lows" but since you should have made a "skewed larger" purchase this month, you don't want to compound it. Ask yourself how you would feel if Bitcoin goes to 20K in the next couple of weeks. While the probability may seem low, ANYTHING is possible. Focus on RISK first.

While many fake gurus and self appointed authorities like to present anecdotal evidence in a way that seems plausible (and usually incites hope, remember seasonality 70% chance BTC goes to 85K???) I would like to share an observation that may offer further incite into the Bitcoin sell off. Since the institutional involvement beginning in 2018, from what I understand, many companies made it a point to include Bitcoin on their balance sheets. I recall people saying things like "if all these big companies invest just 1% of their capital into BTC, it will easily go to 100 or 200K or more." I recall all of this hopeful herd mentality talk when Bitcoin was pushing through the 50Ks. IF many larger companies (S&P 500 members) were investing in Bitcoin, then it may be why we are seeing a strong correlation. I don't think this was part of the Bitcoin plan. I have no way to prove this, all I can see is the prices behaving in a similar way, certainly worth researching further. If this is true, then Bitcoin is just another version of the S&P and the S&P is NOT going higher any time soon (the rising rate environment that I have been talking about for MONTHS. Listen to prices NOT PEOPLE!).

Either way, fundamentals aside, over the short term the key is to constantly evaluate the short term price structure as it unfolds around mid term and long term trend levels. Until the short term structure changes, I would not be anticipating a sustained rally any time soon (price may be establishing the Wave 4 bottom that I have also been talking about for MONTHS). Resistance should hold, until price proves otherwise.

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