The Great Altcoin Washing Machine
Jul 10, 2015 --- Altcoins
Written by @AKWAnalytics
While some newer crypto traders may be scratching their heads as to what the hell just happened in the altcoin markets over the past 24 hours (LTC, PPC, NMC), those of us that have been around for awhile have seen this movie before (particularly on BTC-e). In fact, this type of action has been going on for as long as there has existed illiquid or easily manipulated financial assets or securities. Penny stocks and very low rated junk bonds immediately come to mind, but even these are now more difficult to move at will by single parties, certainly moreso than the puny cryptocurrency altmarkets we are talking about here. Let's be clear, we are not implicating anyone or anything in any kind of collusive or coordinated malicious effort, however there is an entity that is throwing these market around like a rag doll in order to take money from the naive (just as they have since markets began).
What can we do to protect ourselves from these moves, or more importantly, how can we profit from them? There are multiple ways and the first one is simple, preserving capital by not losing money via FOMO (fear of missing out). The second is to trade the action, i.e. identify a potential topping area with good risk/reward and get short as a speculative bet. BTW, you can short these markets with leverage on MT4 via BTC-E (hmmm, wonder if that has anything to do with all of this volatility!). The third, and perhaps most important, is that as these bubbles deflate once again those profits will move into other similarly speculative assets, and the cycle begins all over again. Wash, rinse, repeat.
So how can we identify the areas where a top might come in? Your first indication is price going vertical. We can see on all of the charts below that every single time price has done this in the past, it has pulled back significantly from the top the very same week. This is smart money exiting as they tweet about how the thing can go no where but to the moon. Next, OTE's, supply and demand areas, and historical support and resistance all come into play when considering where price obstacles might be encountered. Lastly, volume plays a big part in how moves play out in these illiquid markets. The smart money accumulates slowly as price drags along the bottom, then they begin selling once price goes vertical. You can see this phenomenon in the charts below via the volume bars on the spike candles. Notice they are all HUGE red bars, meaning heavy distribution at the highs. They decide what the highs are afterall, so this makes sense.
Now, where is all that new money heading next?! You'll have to subscribe to find out, but we will tell you that we are bullish on the anon coins that have gone largely unnoticed over the past month or two, particularly Monero (XMR) and Dash (DASH).
This most recent rise is the third time we have seen a distributive spike higher like this since litecoin's inception, but this one was definitely the most intense as far as volume. Price hit resistance in the lower half of the LT supply zone, which is actually not that great of performance in relation to the previous two spikes, so we are not surprised that the sellers might have jumped the gun. Regardless, the near term top is in.
Now price is sitting at the longer term moving average, a key level which will be indicative of whether or not the rally is over on an intermediate term basis. If the weekly candle closes below the MA then further downside is in the cards and the top really is in for now, but if it holds then the bulls have a shot at a retest/bull trap, or perhaps even a washout high, before having to get worried again.
Peercoin's rally was weaker than litecoin's, as it only made it to a previous spike high and not the supply area as expected. This chart is also much more bearish than litecoin's as we currently have a shooting star top that has failed to hold moving average resistance, with an even more bearish volume candle, and a toppy Stochastic. We wouldn't touch this thing with a ten foot pole until it gets back above the 80day MA and can hold. We don't expect this to occur in the near term, but if you are bullish longer term then look for a cup and handle consolidation over the next few weeks. You might get another shot if this coming crypto bubble materializes as some think it might.
Namecoin actually was the most well-behaved technically of the three coins, despite being the most illiquid. This should not surprise us given that the big dogs work off of charts and TA as well so if they are in control then price will follow the rules with little deviation. We can see that price entered the supply zone and smartly pulled back to the moving average as selling volume intensified. Much like PPC, Namecoin is now below the key MA on a toppy Stochastic and a Willy that is about to crossover. Again, we would wait for the C&H-type correction with a hold of support in order to even consider buying these coins for a potential second leg.
Having said all of this, you should note that we have red boxes on all of the charts that indicate areas where smart money would not only want to sell what they have, but will want to take the double and get short for the waterslide back down to the bottom. Keep these in mind as you are watching prices over the next few weeks, and know that the probabilities say that the rally is already over so best to find new spots for your precious cash (hint, hint :-)...
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Happy trading and have a great BITday!
Disclaimer: Please always do your own due diligence, and consult your financial advisor. Author owns and trades bitcoins and other financial markets mentioned in this communication. We never provide actual trading recommendations. Trading remains at your own risk. Never invest unless you can afford to lose your entire investment.