By Kris Sayce, editor, Casey Daily Dispatch

Andrey Dashkov

It isn’t just stocks feeling the heat in September.

Cryptos are, too.

Yet, the first few days looked good for crypto.

The market rallied.

Perhaps investors anticipated a bad month for stocks… so they bought crypto instead.

The entire crypto market gained 15% in a week.

Then it dropped – big.

So what can we expect next? Will crypto rebound in the same way we predict for stocks? Or is it a completely different beast?

We’ll share our in-depth analysis with you below…

If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.

At the Dispatch we have two goals:

  1. To introduce you to the most important investing themes of the day, and

  2. To show you how to profit from them.

We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.

Today we look at crypto again, specifically bitcoin, to analyze if this month’s crypto slump will resume… or if new highs lay ahead.

The Fundamentals Are the Same, but the Technicals Have Changed

Just as the overall crypto market slumped this month, the price of bitcoin did, too. It hit a short-term peak above $52,000 on September 7. That was a gain of over 15% in the space of a week.

Then came the slump. It fell around 20% from that peak, and today, bitcoin trades back to where it was at the end of August.

Why the big move – both up and down? From what we can gather, fundamentally, nothing has changed regarding bitcoin or most other cryptos during the past three weeks.

So, by our way of thinking, it makes little sense to rehash the fundamental reasons to own bitcoin or other cryptos. Our experts have covered that in the past. The same arguments apply.

Instead, we’ll look at the technical reasons. As always, that’s where we draw on the expertise of technical analyst, Imre Gams.

The last time we asked Imre for his analysis of bitcoin – on August 6 – he explained that bitcoin was stuck in a $10,000 trading range.

In order to break out of that range, he said that bitcoin had to be able to sustain a rally through the key level of $40,681. The next day, it did. Afterwards, bitcoin continued to trade higher, breaking that trading range.

In fact, by September 6, bitcoin closed at a recent high of $52,698.81. And as Imre explains:

That September 6 date is significant as it marks the end of the first wave of a new bullish trend.

Since putting in that high, bitcoin pulled back, trading as low as around $44,000, and is now around the $47,000 level.

If you invest or trade cryptos, you’ll be familiar with these big price moves. It’s not uncommon to see a crypto move in big double- or triple-digit percentages in a matter of minutes, hours, or days.

The question, as always, is, “does it make sense to buy around the current price, or can we expect to see an even better opportunity in the near future?”

Trading Into the “Strike Zone”

But before we get into the specifics, we asked Imre to explain if there was anything significant about the pattern forming in the bitcoin price today:

In short, yes. Whenever I’m looking for a trade, I like to look for what I refer to as a “strike zone.” It’s basically a price range on a chart where I believe I have a high probability of making the right trade.

I’ve found that when I take a trade outside my strike zone, my probability of hitting a winner goes way down. That doesn’t mean the price action will always fall within my strike zone. If it doesn’t, that’s fine. Remember, I’m just playing with the probabilities.

And the probabilities have shown me that if I enter a trade too soon, I’ll probably be left figuring out how to manage a bad entry on what could’ve been a good trade – if I had waited.

This is an important point. Novices to trading, or those who prefer fundamental analysis, sometimes think that traders should have a 100% win-rate. They have a false impression that technical traders are trying to pick a winner with every trade.

That’s not true. Traders are looking for certain patterns and “set-ups” that will help them enter and exit trades. But just as fundamental analysis doesn’t always get you into an investment at the right time, the same can be true of technical analysis.

As Imre went on to explain to us:

By looking for these “strike zones,” it means that even if I don’t get it completely right, I won’t have to sit in a losing position for quite as long as I might if I get into the trade too soon.

And it also means that if or when the trade turns the right way within that zone, the payoff comes sooner. In other words, because I haven’t bought too soon, I don’t need the price to rise as high.

So how does Imre recognize these particular patterns and zones for buying? He told us:

Chart patterns and setups occur everywhere on a price chart. But where a setup occurs is just as important as the setup itself.

Identifying these strike zones gives me that all-important “where.” The way I set my strike zone is very simple.

After a strong trending move comes to an end, I draw Fibonacci retracement levels over the entirety of that move.

If you’re unfamiliar with Fibonacci levels, they are price levels where a market is more likely to find either support or resistance. The levels stem from the Fibonacci mathematical sequence and are expressed as a percentage.

We’ll just cut in here. Fibonacci is an entire subject by itself. Folks have written books on this stuff. So we won’t go into the full details. The good thing is that many of the basic trading platforms include the various Fibonacci tools in their chart packages.

Back to Imre:

My strike zone is the area between the 38.2% and 61.8% retracement levels. If for example, a market finds support at the 61.8% level, then the market corrected 61.8% of the last strong trending move.

I can show you an example of this on the bitcoin’s price chart.

Chart

You’ll notice that I have identified the rally from the July 20 lows as the first wave of a new bullish trend.

I then took my Fibonacci measurements from the start of the trend at $29,609.65 to its end at $52,698.81.

You can see the 38.2% and 61.8% retracement levels on the price chart. They come in at $43,881 and $38,367, respectively.

My “strike zone,” the area where there is the strongest probability of making a winning trade, is the area between these two levels.

Now, the price won’t always go into that strike zone. Remember, we said that if the price goes into that zone, it just makes it a higher probability trade.

Or if it goes into that zone, it can just as quickly bounce back out of it. That’s what happened here. The trade entered the zone and quickly moved higher, confirming Imre’s view that it’s important to wait for certain patterns to play out.

Of course, the move here was so quick that it may have been hard for traders to take advantage. But that’s all part of trading. You make some trades, you miss others.

As Imre explains:

Whenever a market is correcting, the strike zone is a very reliable area in which the correction will come to an end, and you can start thinking about getting into a trade.

So the question here is whether that’s the end of the price weakness for bitcoin, or whether that zone is still in play…

Bitcoin Is Heading for a New High, but First…

Imre says it should play out like this:

The “strike zone” is still in play. The rebound was pretty quick, and it could go as high as $48,314. But as a trader, looking at the charts right now, we could still see the price drop back to the zone.

However, if it does, my expectation is that it will only be temporary. After this current correction ends, we should see bitcoin trade back above the $52,698.81 high at the very least.

Eventually, we will go on to take out the prior all-time closing high of $63,588.

Remember, this is trading analysis – looking at relatively short-term moves. But it can help the longer-term investor, too. Why pay a higher price if there’s a chance you can buy at a cheaper price in the days ahead?

The bitcoin price moves quickly – as you can see from Imre’s chart. So it’s always going to be tough to get you the most timely analysis. But what we can do is highlight patterns and trends… and explain how they work.

You can then take that information and apply it to your own trading and investing… whether that’s in bitcoin or stocks. We’ll continue to monitor the price action in bitcoin, and we’ll keep you up-to-date with where we believe it could go next.

Cheers,

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Kris Sayce
Editor, Casey Daily Dispatch