BTC - Bitfinex Short Interest Disappears as Market Consolidates
Diupdate
Pretty uneventful weekend for the most part at least right up until the end. Yes the large short positions on Bitfinex just mysteriously vaporized like as if they were never there. Conspiracy or is there a logical reason?
With Bitcoin and the market in general looking to consolidate after such a huge swing, it is easy to get caught up in the emotional trade. This is where profits can turn to losses quick as the feeling of control and easy money comes into play.
We mention it over and over to emphasize the importance of waiting. Unfortunately in a world of instant gratification many have trouble sitting on the sidelines. If you don't control your emotions, through discipline and boundaries you will probably be reloading your account more often than you think. I know this time you'll play it safe.
Technical:
As I mentioned earlier today, markets do not stall or pullback because it hit some magical Fibbonacci number, divergence on the RSI, or the MACD crossed over. Markets pullback because they run out of buyers and both short term and long term traders start taking profits.
Those that were to scared to buy during the crypto-winter, jump emotionally into a bull market thinking it will just continue higher, without pause. Those that accumulated during the downturn start looking to lock in some gains.
Seriously if you cost averaged in below 7k over the past year, these emotional traders just gave you a free ride on half your inventory. Now you have no risk and capital to deploy elsewhere. This is evident with the initial engulfing candle that formed on the daily a few days ago.
Of course hype is all abound, and many thought "ohhh buy this dip". As they bought on hope of a continuation run to 20-40-60k those earlier investor continued to take profits. This results in the dead cat bounce or typical bull trap. No matter how many times it happens, history repeats! This is because humans have emotional tendencies of greed and fear, it happens over and over and over again.
I want to be clear I am not overly bearish I am just cautious. Markets take breathers, and at new highs, we often see consolidation. Taking the high and the low of the initial selloff where buyers stepped back in, we can draw a range. I also drew the middle of the range in orange. In lieu of guessing which way we go, we will now monitor it for evidence of either further strength or potential weakness.
All those articles about the impulsive natures of humans in markets, well here you go! During periods of high emotions you step back not step in. This takes discipline and emotional control which few have. Why is this important?
A close of the daily candle in this position would be a bearish sign. Not long term bearish but short term. It would signal that buyers are exhausting here and there are more sellers than buyers. Eventually people realize they bought bought the suckers rally and decide to cut losses. This combined with larger operators fading any buying momentum increase the probability of a swing lower.
Between 10k & 10,565 there is some preliminary support. This could hold as it defines the broader range, but if it pushes through 10k all bets are off. Not that we see a capitulation into the Abyss, but the mid to upper 8k area comes into play.
Currently I like the 9500 level as a basis of support. This is where the previous rally broke out, and is likely to attract buyers that sold in the 12-14k area. They are buying back at a 35% discount plus or minus to where they sold. Historically 30-40% is a typical pullback though recently off the lows they have been much more shallow around 20%.
Yet this is likely the end of the initial cycle and we were coming out of an extreme area which leans more towards a 30-40% correction. This would put the potential support range between 8000-9750. Of course we do not have to move that low, 10,000 -10,500 is support for now.
Because these types of bullish swings draw attention, consolidations can be short lived. The past two consolidation periods happened over a month, so a short consolidation period here would be a week or two. This is only the 4th day of consolidation, and though we could break higher from here, it is more likely we don't. Let's take a look at some historical data.
The shortest consolidation before Dec 2017 was 13 days and the low took 8 days to reach. This may have been an anomaly as the prior consolidations were all 53 days to 191 days. The current two trailing consolidations were almost identical at 29 & 30 days each. We just entered the 5th day of consolidation after an extreme move, so probabilities, based on historical market sentiment, suggest we have a few more days before we reach a low, and likely a couple three weeks before we take out a new high.
Maybe I'm wrong and I could be. This could simply be front running a potential news event like TD Ameritrade and E-Trade announcing crypto trading. Maybe an ETF decision is coming out next week. These are fundamental changes that can take Bitcoin vertical quickly, which is why we do not want to be completely out of the market. Thinking you will get in before the release is naive.
However not having cash on the side to take advantage of the more probable move lower is hoping.
Understanding Markets:
The large nearly engulfing candle was our first warning that profit taking was happening. Institutions are not buying here, at least aggressively, they are likely selling or trimming down for a re-balance. Unlike traditional investors and traders, they like to lock in profits when they can and re-balance their portfolios quarterly, semi-annually or annually. Well its the end of a quarter and also the first half of the year.
With Bitcoin up 4 fold since the start of the year, well time to re-balance risk. Not all large operators will re-balance, but it is safe to say most are likely taking profits at some point, not riding it up and down and up and down. Most maintain a percentage balance of stocks, bonds, gold, and some crypto. I doubt crypto is more than 1-2% of these portfolios, so a 2% position at an average cost of 4k makes it nearly 8% of your holdings, and they rebalance.
Hell its a risk free investments for many of them, thanks to the gurus that were freaking the herd out from 8k and lower during the crypto winter.
Of course many complain about manipulation, but quite frankly it is just an excuse for being wrong. If you are going to swim in the ocean spearfishing grouper, you are likely to attract sharks. So goes the retail investor, as the money in their account is no different than bleeding grouper in a spear-fisher's basket. This brings us to the conspiracy of the day as 20k worth of BTC Shorts just vaporized into thin air.
Bitfinex Ghost Trade
Out of nowhere today, 20k shorts positions were closed. Not in the span of a few hours, but in less than 2 minutes. Conspiracy? Or evidence that larger institutions were hedging?
We have been talking for about a week that these were some strong shorts. To hold through a 30% rally requires some heavy liquidity. This was not your typical retail short market.
This was likely institutional traders that had the liquidity to fade a rally like this, locking in profits from lower levels with a hedge.
This order was not closed on the open market based on the chart. A 20k BTC market order would have wiped out the book, resulting in a short squeeze. So what could have happened here. Well two scenarios.
First it was a ghost order to give the impression that short interest was higher than it was, leading the herd to think a potential short squeeze was imminent. Clearly the real short squeeze already happened. If I had to guess it was probably on the 21st or so, this is when we saw the first leg higher and it has all the characteristics of a short squeeze. Bitfinex just cooked the books, and now removed the ghost trade revealing the squeeze already happened.
The second likely scenario is that a larger operator that hedged wanted to close out their short position, but the market could not sustain the order. Just not enough sellers. So they or Bitfinex negotiated offline between another larger player(s) that wanted to sell. Once the deal was closed they removed the short.
There was no liquidation of this order, at least going by the charts. One thing we can be sure of is the potential short squeeze is gone so longs trading for the squeeze, add some sugar it makes lemonade. This sets the market up to move lower. Not a lot lower, but lower non the less. I'm sure there will be many conspiracy theories, but I think it was one of the two scenarios above.
I know my theory is pretty boring, but I am sure someone has something way more exciting, involving Roger Craig, a party boat, some missing passwords, the elves at the North Pole and a tooth fairy. Well reality is it was probably closed off the main exchange to keep volatility from happening.
In the end this is a wait and see market. Now if you do not have any Bitcoin, there is never a bad time to buy some. As I tweeted out yesterday, if you had started buying in Dec2017 on the 1st and 15th of every month, you would be up over 80% today and your average cost would be $6079. Not bad for starting at the worst possible time! How many lost 60-80% trying to trade last year? How many laughed at the guy that started buying into the fomo. How many trolls are now making up new accounts?
Been kind of a troll free zone recently.
Regardless stop trying to get rich quick chasing champagne dreams in unicorn valley. The path to wealth is not quick, it takes time and being a conservative and cautious trader.
After all it is not what you make, it is what you keep.
With Bitcoin and the market in general looking to consolidate after such a huge swing, it is easy to get caught up in the emotional trade. This is where profits can turn to losses quick as the feeling of control and easy money comes into play.
We mention it over and over to emphasize the importance of waiting. Unfortunately in a world of instant gratification many have trouble sitting on the sidelines. If you don't control your emotions, through discipline and boundaries you will probably be reloading your account more often than you think. I know this time you'll play it safe.
Technical:
As I mentioned earlier today, markets do not stall or pullback because it hit some magical Fibbonacci number, divergence on the RSI, or the MACD crossed over. Markets pullback because they run out of buyers and both short term and long term traders start taking profits.
Those that were to scared to buy during the crypto-winter, jump emotionally into a bull market thinking it will just continue higher, without pause. Those that accumulated during the downturn start looking to lock in some gains.
Seriously if you cost averaged in below 7k over the past year, these emotional traders just gave you a free ride on half your inventory. Now you have no risk and capital to deploy elsewhere. This is evident with the initial engulfing candle that formed on the daily a few days ago.
Of course hype is all abound, and many thought "ohhh buy this dip". As they bought on hope of a continuation run to 20-40-60k those earlier investor continued to take profits. This results in the dead cat bounce or typical bull trap. No matter how many times it happens, history repeats! This is because humans have emotional tendencies of greed and fear, it happens over and over and over again.
I want to be clear I am not overly bearish I am just cautious. Markets take breathers, and at new highs, we often see consolidation. Taking the high and the low of the initial selloff where buyers stepped back in, we can draw a range. I also drew the middle of the range in orange. In lieu of guessing which way we go, we will now monitor it for evidence of either further strength or potential weakness.
All those articles about the impulsive natures of humans in markets, well here you go! During periods of high emotions you step back not step in. This takes discipline and emotional control which few have. Why is this important?
A close of the daily candle in this position would be a bearish sign. Not long term bearish but short term. It would signal that buyers are exhausting here and there are more sellers than buyers. Eventually people realize they bought bought the suckers rally and decide to cut losses. This combined with larger operators fading any buying momentum increase the probability of a swing lower.
Between 10k & 10,565 there is some preliminary support. This could hold as it defines the broader range, but if it pushes through 10k all bets are off. Not that we see a capitulation into the Abyss, but the mid to upper 8k area comes into play.
Currently I like the 9500 level as a basis of support. This is where the previous rally broke out, and is likely to attract buyers that sold in the 12-14k area. They are buying back at a 35% discount plus or minus to where they sold. Historically 30-40% is a typical pullback though recently off the lows they have been much more shallow around 20%.
Yet this is likely the end of the initial cycle and we were coming out of an extreme area which leans more towards a 30-40% correction. This would put the potential support range between 8000-9750. Of course we do not have to move that low, 10,000 -10,500 is support for now.
Because these types of bullish swings draw attention, consolidations can be short lived. The past two consolidation periods happened over a month, so a short consolidation period here would be a week or two. This is only the 4th day of consolidation, and though we could break higher from here, it is more likely we don't. Let's take a look at some historical data.
The shortest consolidation before Dec 2017 was 13 days and the low took 8 days to reach. This may have been an anomaly as the prior consolidations were all 53 days to 191 days. The current two trailing consolidations were almost identical at 29 & 30 days each. We just entered the 5th day of consolidation after an extreme move, so probabilities, based on historical market sentiment, suggest we have a few more days before we reach a low, and likely a couple three weeks before we take out a new high.
Maybe I'm wrong and I could be. This could simply be front running a potential news event like TD Ameritrade and E-Trade announcing crypto trading. Maybe an ETF decision is coming out next week. These are fundamental changes that can take Bitcoin vertical quickly, which is why we do not want to be completely out of the market. Thinking you will get in before the release is naive.
However not having cash on the side to take advantage of the more probable move lower is hoping.
Understanding Markets:
The large nearly engulfing candle was our first warning that profit taking was happening. Institutions are not buying here, at least aggressively, they are likely selling or trimming down for a re-balance. Unlike traditional investors and traders, they like to lock in profits when they can and re-balance their portfolios quarterly, semi-annually or annually. Well its the end of a quarter and also the first half of the year.
With Bitcoin up 4 fold since the start of the year, well time to re-balance risk. Not all large operators will re-balance, but it is safe to say most are likely taking profits at some point, not riding it up and down and up and down. Most maintain a percentage balance of stocks, bonds, gold, and some crypto. I doubt crypto is more than 1-2% of these portfolios, so a 2% position at an average cost of 4k makes it nearly 8% of your holdings, and they rebalance.
Hell its a risk free investments for many of them, thanks to the gurus that were freaking the herd out from 8k and lower during the crypto winter.
Of course many complain about manipulation, but quite frankly it is just an excuse for being wrong. If you are going to swim in the ocean spearfishing grouper, you are likely to attract sharks. So goes the retail investor, as the money in their account is no different than bleeding grouper in a spear-fisher's basket. This brings us to the conspiracy of the day as 20k worth of BTC Shorts just vaporized into thin air.
Bitfinex Ghost Trade
Out of nowhere today, 20k shorts positions were closed. Not in the span of a few hours, but in less than 2 minutes. Conspiracy? Or evidence that larger institutions were hedging?
We have been talking for about a week that these were some strong shorts. To hold through a 30% rally requires some heavy liquidity. This was not your typical retail short market.
This was likely institutional traders that had the liquidity to fade a rally like this, locking in profits from lower levels with a hedge.
This order was not closed on the open market based on the chart. A 20k BTC market order would have wiped out the book, resulting in a short squeeze. So what could have happened here. Well two scenarios.
First it was a ghost order to give the impression that short interest was higher than it was, leading the herd to think a potential short squeeze was imminent. Clearly the real short squeeze already happened. If I had to guess it was probably on the 21st or so, this is when we saw the first leg higher and it has all the characteristics of a short squeeze. Bitfinex just cooked the books, and now removed the ghost trade revealing the squeeze already happened.
The second likely scenario is that a larger operator that hedged wanted to close out their short position, but the market could not sustain the order. Just not enough sellers. So they or Bitfinex negotiated offline between another larger player(s) that wanted to sell. Once the deal was closed they removed the short.
There was no liquidation of this order, at least going by the charts. One thing we can be sure of is the potential short squeeze is gone so longs trading for the squeeze, add some sugar it makes lemonade. This sets the market up to move lower. Not a lot lower, but lower non the less. I'm sure there will be many conspiracy theories, but I think it was one of the two scenarios above.
I know my theory is pretty boring, but I am sure someone has something way more exciting, involving Roger Craig, a party boat, some missing passwords, the elves at the North Pole and a tooth fairy. Well reality is it was probably closed off the main exchange to keep volatility from happening.
In the end this is a wait and see market. Now if you do not have any Bitcoin, there is never a bad time to buy some. As I tweeted out yesterday, if you had started buying in Dec2017 on the 1st and 15th of every month, you would be up over 80% today and your average cost would be $6079. Not bad for starting at the worst possible time! How many lost 60-80% trying to trade last year? How many laughed at the guy that started buying into the fomo. How many trolls are now making up new accounts?
Been kind of a troll free zone recently.
Regardless stop trying to get rich quick chasing champagne dreams in unicorn valley. The path to wealth is not quick, it takes time and being a conservative and cautious trader.
After all it is not what you make, it is what you keep.
Catatan
During the previous rally the pullbacks were between 30-40% with 40% being the typical correction for major rallies.The prevailing two pullbacks have been around 20%, however, this is the end of clear 3 impulse wave cycle and it would be feasible to see a pullback between 8275 & 9750. The 9750 level is an important level from several aspects of TA which adds weight to it being heavy support.
Catatan
Catatan
The lower boundary held here even though it extended past it briefly.This is a failed low situation or a bearish fakeout where late buyers realize they bought the bull trap, blow out positions right into buyers that sold at higher levels looking to re-enter.
No matter how many times this happens, it repeats over and over and over again. There was a long setup that triggered which we are in, and we also added near the low 10k area just stepping in front of the train.
These moves at these levels are risky. Stepping in front of the train implies you may take some pain. Keep in mind you have a choice to either buy favorable prices or favorable structures. You don't get both!
In order to get better prices, you have to step in front of the selloff or attempt to catch that knife. Sometimes it works sometimes it doesn't. Waiting for a more favorable setup provides a higher probability of success, but you leave some meat on the plate.
Stepping in front of the train is more applicable for position traders or investors. Position trading is just shorter term investing. Swing traders should always wait for more favorable structures.
There is a reason for this and it is important to identify what type of trade you are taking and to not mix the strategies or your capital up if you do both. Never let a swing trade become a position trade as you will be short on capital.
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