If you've been investing in Bitcoin or cryptocurrencies for the past 2 years, you've probably heard of TD Sequential.
This technical indicator is the brainchild of consultant Tom Demark from Point 72. It has long been an expensive trading tool for investors to find out where the reverse of the macro is.
Indeed, as Demark had note In a recent interview with Bloomberg, his indicator formed a "13" (reversal candle) candle when Bitcoin reached $ 20,000 in December 2017, $ 3,150 on December 14, 2018, and peaked. $ 14,000 in June 2019.
In other words, this indicator creates the three most important inflections of the entire Bitcoin price trend over the past few years, proving the amazing accuracy of TD Sequential.
Therefore, it should be noted that there is a downside risk in the current cryptocurrency market, as TD Sequential is once again starting to form a signal and could push prices down.
Bitcoin price may soon reverse
Over the past 50 days, Bitcoin has recovered strongly. On December 17, Hedge Fund Telemetry's Thomas Thornton noted that BTC is forming a TD Sequential 13 candle when the price is below $ 7,000, signaling a reversal move is coming.
Indeed, BTC did that, reversing sharply and rising for a few weeks, bringing the price to today's high of $ 9,850. However, this uptrend may end soon.
The TD Sequential indicator has proven very accurate against Bitcoin once again giving a signal. And this time, the possibility of decreasing more than increasing.
According to Thornton tweeted on Friday morning, traders should start "long selling today and neutral", on the grounds that Sequential formed a candle 13 just like when it had made a bottom of $ 6,400.
If candle 13 is formed, the history of the index's accuracy will signal a strong pullback BTC in the next few weeks. While Thornton did not set a specific target, famous analyst Mayne predicted that the price would soon drop by more than $ 1,000, meaning that it would trade in the $ 8,000 zone.
#BITCOIN update. Recommending selling long today and go neutral. Maybe a little early with pending DeMark Sequential Countdown 13. Up 52% from buy recommendation in December when there were DeMark buy Countdown 13’s cc @DTAPCAP @RaoulGMI @MarkYusko @APompliano pic.twitter.com/m0D9wpjOSm
- Thomas Thornton (@TommyThornton) February 7, 2020
“Update Bitcoin. Should sell long and neutral today. DeMark's 13-count Sequential is about to form. It happened when the price increased 52% compared to December.
Other signs of discount
That is not the only analysis that shows Bitcoin starting to blink.
On Wednesday night, the BitMEX sponsorship rate for Bitcoin contracts reached as high as 0.14%.
According to a recent analysis shared by economist and analyst Alex Krüger, Bitcoin has a sponsorship rate of over 0.12% (equivalent to the insane level of 131% if calculated on an annual basis) that was the premise of big sales.
This boxplot shows what happens with bitcoin’s price when Bitmex funding reaches levels as extreme as today’s.
Bitmex funding can be used as a proxy for traders positioning.
Mean return after 5 days has been -7%.
This is free Alpha. Subscribe for more: https://t.co/p1WcWwDOiJ pic.twitter.com/Gs0Hu6GWdl
- Alex Krüger (@krugermacro) February 7, 2020
“The box chart below shows what happens to Bitcoin price when Bitmex's sponsorship rate reaches its extreme today.
Bitmex sponsorship rates can be used as a proxy for traders to search for positions.
The average profit after 5 days is -7% ”.
More specifically, when seeing the aforementioned funding rate, Bitcoin dropped an average of 7% over the next 5 days. While there are exceptions (like in early 2019), it is clear that high funding rates are often a catalyst for catastrophic price drops.
In addition, the right trader Dyme also agreed with the view that Bitcoin is setting up the perfect discount and listing 3 negative indicators to prove the deep bearish judgment in the coming sessions. These are the wedge of price increase, divergence and long orders with excessive leverage.
"All settings shout short commands”, Dyme added.
Breakdown from top wedge rise
Wedge rose Appears when the property tends to increase, creating a higher peak - bottom, forming a cone pattern. But it will breakout in a downward direction when the top of the pattern is reached.
Bitcoin moves inside the wedge of rising prices in red | Source: TradingView.com
Throughout the decade of existence, Bitcoin has been broken from rising wedge models in some cases. That allows Dyme to predict a similar scenario when cryptocurrencies are enjoying the current uptrend.
Similarly, the bearish divergence also predicts a potential reversal between the bull market. A pattern occurs when the asset creates a higher peak but its momentum indicator (such as Relative Strength Index) creates a lower peak.
On Bitcoin's daily chart, there is only one hint of divergence, with RSI peaks almost equal. However, on lower time frames, the momentum indicator is making lower peaks than Bitcoin's higher peak pattern. These developments are in line with the description of potential reverse trends.
Long Bitcoin orders with excessive leverage
The set of BTC transaction statistics shows that cryptocurrencies may be over leveraged at this time. While Dyme only mentioned it, colleague Cantering Clark presented evidence of risky positions in the market and cited the rate of funding, open positions and futures contract spreads.
I think the market is likely due to punish late longs soon.
Market is likely very long right now, as it should be, with the trend.
OI very high (with trend though)
Futs premium +400
25D Skew chart -> Sentiment - ST & LT very confident.$ BTC pic.twitter.com/90XYG8M9Ti
- Cantering Clark (@CanteringClark) February 6, 2020
“I think the market will likely punish orders late. The market may be very long at this point along with the trend. OI is very high following the trend. Fee difference of futures contracts over 400 ".
Clark stated that the next pullback could cause Bitcoin price to drop by 700-1,000 USD.
How though? Regard not like anyone is getting very aggressive lately.
We haven’t seen any major divergences in delta overall toward this recent high.
If anything, I suspect a roll over / fall under own weight i.e. Cascade of stops and liquidations.
A nice 700 - 1k move $ BTC
- Cantering Clark (@CanteringClark) February 6, 2020
“Unlike anyone who is becoming very active. We have not seen any major difference in the delta generally towards this recent high. If so, I doubt it will decrease by weight, creating stops and liquidations. Move 700 - 1,000 ”.
BTC price today | Source: Coinmarketcap
Disclaimer: This is not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
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