We close the last week of May with a market configuration that has hardly changed since the first third of the month. Basically these thirty days have been distributed in two distinct periods, with a first third in which we have suffered a significant fall that has led Bitcoin from levels of 38,000 to touch lows at 26,000 USD, which represents a draw-down of 40%.
This is not an atypical market movement, but it is still remarkable. But this is the past… as always we do not know the future, but we can analyze the current state of the market based on the most recent past.
Analyzing the subsequent two thirds of the month of May we can see a clear distribution zone of the previous fall. (Remember that within the theory of markets, the concept of distribution zone is something that is repeated continuously and it is very important to understand it to understand the movements of the traders.
This is a zone where some feel very comfortable, ,the demonstration is in monitoring the movements of a certain volume in the market. But let’s not get ahead of ourselves and go step by step:
We can clearly appreciate this sideways movement with an hourly chart, where we can see as highlights:
- Most candlesticks have a strong reversion to its mean, (ie. That there is a lot of distance between the opening or closing of the candle, and the highs and lows). This is a significant fact that indicates the strong negotiation that exists at these points, where the price advances very slowly and often without a definite trend.
- At no time, for now, have we seen the initial low pierced. The reading we can make of this fact is that the market now has this low as a reference.
But if we approach the chart with intraday timeframes and looking at the order books, we can see what has happened with more accuracy. And in this case the result is obvious
We can clearly see how important purchases have been made in these price zones, taking advantage of short-term drops or lows
In other words, we have a buyer profile that is taking advantage of this situation to buy. I know this is difficult to understand for newcomers, but undoubtedly, these periods are ideal to accumulate positions in assets that the trader detects that their price is far from their value. This is the key.
Situation consolidated… for now
So we can see how the market has stabilized and is experiencing strong capital inflows at the lows. It must be said that for now, we are also seeing selling of a certain caliber in higher areas, which is prolonging this range-bound price dynamic that the market is currently experiencing.
Ethereum, testing lows
In this commentary, we have to make a special mention to Ethereum. If we examine its chart, it is somewhat more disturbing than Bitcoin’s.
We can see how on this occasion, we have already seen a test of the May lows, an area from which we have not moved away at any time. We are facing a less favorable disposition for the bulls, it is clear.
But we have to take into account certain conditions weighing on this cryptoasset that may be influencing it, such as the upcoming migration from consensus testing to PoS, which is apparently going to be in August, if the tests on the test network that begin this June are satisfactory. The market is very much looking forward to it, that’s my impression.
Macro view: market at statistical lows
From the point of view of the market as a whole, we have a particular situation that we can detect with one of our indicators, our Crypto Oscillator.
Recall that what we see here is the distance to its theoretical historical high of the whole market as a whole, so the current levels of 40-42 points of the indicator come to tell us that the market is approximately at a distance of 60% of its historical high, or put another way:
This downward movement has caused a drawdown of about 60%
The question we must ask ourselves is:
Is this a situation that can be maintained over time?
We do not know for sure, but what is clear is that from a statistical point of view we should answer no, and that there is a strong tendency to reach at least values between 50 to 55 points of the indicator, this would give us an upward potential of the entire market between 10 and 15% without creating excessive tensions from the point of view of volatility.
Waiting for developments
Of course, all that at the expense of not having unforeseen events or unpleasant news, which lately seems complicated. But if you are a believer in this technology and are convinced of its advantages over the traditional system and its transformative potential, you will no doubt have appreciated this situation as a buying opportunity.
It should be noted that except for the major milestones with great media impact, there is a trickle of positive news that is probably more difficult for non-professionals to appreciate, but which also indicates a greater adoption by important market players, of an institutional nature.
These impacts will certainly be reflected sooner or later in asset prices.
But it is clear that we must always condition our criteria and decisions to our investor profile and therefore to our perception of risk.