*I don’t trade cryptocurrencies. The best strategy for trading a crypto bubble is a classic trend following strategy.
Here’s my outlook for various cryptocurrencies based on the aforementioned strategy.
Discretionary outlook based on charts
- Ethereum is no longer making higher lows.
- Bitcoin has touched its 200 daily moving average.
Read Is the bubble in Bitcoin & cryptocurrencies over
6 am: Ethereum is no longer making higher lows.
As expected, the decline in Bitcoin is dragging Ethereum down. Ethereum has broken its pattern of higher lows. It is now on the verge of a significant breakdown.
Trend followers should not buy Ethereum right now. We have no idea how low Bitcoin can go, so catching the falling knife can be deadly. If Bitcoin doesn’t find support at its 200 daily moving average, then the entire crypto currency space (including Ethereum) will crater.
6 am: Bitcoin has touched its 200 daily moving average. Many traders expect a bounce here.
Many traders expect that Bitcoin will bounce here at the 200 daily moving average.
I’m not so sure that Bitcoin will bounce here.
- For starters, too many traders expect a bounce on this level. That is not a bullish sign.
- If Bitcoin’s bubble is over, then it should follow a post-bubble pattern. A lot of post-bubble bear markets see the $ fall below the 200 daily moving average before making a bounce. For example, the NASDAQ in 2000 fell below its 200 daily moving average before making a sizable bounce.
Trend followers should not buy Bitcoin. Don’t catch the falling knife because there’s a >50% chance that Bitcoin’s bubble is over.
Read Cryptocurrencies on February 2, 2018.