The Market (BTC Charts, Liqudity Lesson, SPY Fear / Greed, and Smart Money Concepts)
Good morning everyone, and welcome back to The Market! Your source of free financial analysis that someone random on the internet writes for an audiance of 0 people hahahaha! I'm only joking, but the other parts are true lol. I appreciate all the views and support.
When we left off last, we had made some predicitons. Most of which played out, but some did not.
What Went Right:
-BTC 50,000 = Kind of. BTC approached the highs rapidly, but fell just as fast. However, that wasn't really what we were looking for long term.
-SPX / SPY ALL TIME HIGH = The Market has been CRUSHING IT. And fueled by greed. That's at least how I interoperate it, as do other investors.
I have been saying this for a long time. There is a TON of greed in markets, and investors should be careful.
However, eventhough I already charted out the technical part of the rally, we still achived all time highs and during late January too! As we said it would. I am still waiting to see how the SPY closes on the monthly into February, our ideal target month.
-DXY and Gold behavior. They absolutely slumped! But not as much as I anticipated. At the time of writing, Gold is moving slighly higher, the DXY is headed to the downside along with Bitcoin, and the SPY has been moving to the upside.
What Went Wrong
I am unbiased in my articles, so I have no problem saying I did not get something right.
-The strength of the SPY was more than I ever imagined. Reason being is the VIX. I did not take a look at it approaching the lows. Keep an eye on the VIX if it ever crosses under $10 at any time.
-Beginning of January, the market historically takes a dip. Although we said that it bounces mid-late January, I did not anticipate this sort of move. The market had achieved ATH 3 days in a row! That’s insane and I expect a pullback. The probability of a sizable pullback is priced in with options. The price for a contract 10+ days out is much higher than expected.
-BTC 4 hour sell side imbalance. I anticipated a move to the highs, but that was not realized when I thought it would on the previous week(s).
I took another look at the charts, and I realized we are more in our setup than I anticipated as well.
Charts
BTC Weekly (Equal Highs -> Drop)
I noticed something really interesting and it aligns with our thesis, a bit too much.
This is a chart of the BTC Weekly. It might be hard to tell, but I noticed when Bitcoin reaches equal highs, we see a strong move to the downside. Let me zoom in for you.
And guess where we are right now?
On the day of the BTC ETF announcement, we achieved equal highs. And have been heading to the downside, but the movements are different than before. This is because of fear in crypto, EXACTLY what big money wants.
This actually looks better
We are headed into the first equal low and stronger resistance as you can see represented by the wick to the downside. But I am not done there. Let’s look at the chart on the Daily frame.
BTC Daily
Here is the chart today
We absolutely CRUSHED our prediciton that we would see the sellers hit the tape around the 40000 significant zone.
You already KNOW what i’m about to say about this!!!
We are retesting the support (turned resistance) significant zone.
Anyone that know me and my setups for trading futures knows this is exactly what we want to see for more confirmation to the downside.
However, it doesn’t stop there.
It would appear that at this moment of writing, we may actually be forming a Rising Wedge / Bear Flag into the then support now resistance zone.
Just when you think there could not be more confidence, I also took a look at the imbalances. One of my favorite setups to trade.
Buy Side Imbalance + RSI
We already have talked about Liquidity, but we have gained a bunch of new followers so let me briefly go over how liquidity affects the price of market instruments.
There are two forms of Liquidity. Buy side liquidity and sell side liquidity.
In a perfect market, there would be a range of buyers and sellers all placing limit orders to execute once a stock, contract, or whatever else reaches.
In a efficient market, there would be liquidity around the areas of significance, higher highs, lower lows, and so forth.
In a non-perfect market, there would be equal liquidity to the upside or downside at all times.
In a inefficient market, there would be no liquidity anywhere.
In a Buyers Sentiment Market, there would be mostly liquidity to the downside, waiting to drive up the price down in efficient markets
In a Sellers Sentiment Market, there would be mostly liquidity to the upside, waiting to drive the price down in efficient markets
Although those two seem to contradict, Sellers will normally hit the tape above the price to send the market down. Similarly, Buyers would like to buy below the price to keep the market up.
In all cases, markets are attracted to Liquidity. Think of Liquidity as a magnet. In efficient markets, the price wants to go where liquidity is the heaviest. Even if its sellers trying to keep down the price, they would want to place shorts at the top. Where as buyers would want to place longs at the bottom. That’s how the market works.
So if there is a bunch of liquidity to the upside in an efficiently priced market, buyers will need to step in and take out that liquidity and keep moving the price higher. If there is a bunch of liquidity to the downside, sellers will need to step in and take out that liquidity and keep moving the price lower.
In a Market Pump, normally what happens is that a large sell order is taken out with volume. This will tell algorithms to pull their shorts, and buyers will step in. The same would happen if the market is moving fast with volume to the downside. Algorithms always do their best to buy and sell at the right time. The saying “don’t fight the tape” or “don’t fight the trend” holds strong in a market that is moving in a direction with insane volume, as a result to algorithms or big players removing liquidity to essentially “get out of the way”.
Now that we finished the 5 minute Alkaline Crash Course on Liquidity, lmao, let’s go back to the charts.
I included the RSI to demonstrate that we are not oversold yet on the daily time frame. However, if you look at the chart, there is a lot of liquidity to the downside. What tells me is that smart money has already priced in the possible move down and wants to buy back in at an “efficient” price. This tells me that we might be looking at a buy side imbalance where buyers are anticipating a further move down and have placed orders at lower prices. This would appear in the form of buy side liquidity, which again, tends to drag the price lower.
What Information Have We Gathered?
1. When BTC reaches an equal high, there is a large probability of a sizable move to the downside followed by an even larger move to the upside.
2. There is a possible bear flag / rising wedge forming as the price tries to retest the previous support, now turned resistant, zone.
3. There is an imbalance of buy side liquidity on the daily time frame. This has the potential to bring the price even lower.
4. The RSI is not overextended to the downside, meaning that the potential to move down in the up coming weeks is still possible and the confidence in a possible reversal has become anticipated yet.
5. Smart money might have already priced in the next move, and we can see their thoughts in the form of limit orders at lower prices.
What Does This Mean?
The probability of moving lower is higher than moving to the upside. Now don’t get me wrong, that might not end up happening and I could be entirely wrong. But looking at the charts through the lens of unbiased technical analysis, it would tell me that we might see a larger move to the lows.
What Does Fear Have To Do With It?
Smart money likes to buy the fear of holders of anyone who wants or has already sold. So if investors and traders start selling their positions, smart money is going to take a look at their charts and tools available to them to see if a larger sell off might happen. If everyone jumps ship, someone is going to want to buy a lot of something for a cheaper more “efficient” price.
What Does Greed Have To Do With Markets?
A rally fueled by greed is not sustainable. It also leads to INCREDIBLE amounts of volatility. At the time of writing, the Fear and Greed index has changed.
For example, let’s say that Tesla’s earnings come out bad today. With the markets in “extreme greed”, this might mean an extreme pullback in markets because of volatility. Think about how Fear and Greed affects your position in markets. How do you feel when you Fear momentum? Probably not great and you will become worried and maybe lose confidence in your position. You, and millions of others might choose to “take profit” or “cover your losses” maybe even “take an unrealized loss” out of emotion only to realize your overthinking made you foolish. You might have even bought puts but sold because you feel the market can’t go down. Now think about how you feel when you say to yourself “I can’t lose”, or “There is no way the price could go lower”, maybe even “Nothing can go wrong”. Even more so, the feeling of FOMO in markets. You missed the initial rally, so what do you do? Buy at the highs. Only for Tesla to drop bad earnings and now you can’t sell your calls until the market opens and when it does open, you sell immediately out of “Fear”, only for the market to not care and move higher. You might have even bought puts, but sold because the market ended up rallying out of greed.
My point is to put it all together. This level of imbalanced caused by greed means heavy volatility which could send markets flying or sinking. Very rarely do we see the Fear and Greed index in the Extreme Greed or Extreme Fear category and cause the market to move sideways on the week or even the next 2–3 days. We will almost immediately see a reaction of some sort.
How Does Greed In Markets Affect The Crypto World?
The honest answer is I don’t know. Since the BTC ETF, this is the first time we have seen the Extreme Greed indicator, and I am still just watching how the market reacts. It seems right now that when the markets move higher, Bitcoin loses it’s upside momentum. However, if Tesla posts incredible earnings and sends the market flying, I am not entirely sure what that will mean for Bitcoin. So for now, I am not going to FOMO into any crypto candles. I want to see how January closes at the very least, and all my indicators are telling me there is more downside potential than a reversal upside. I am going to trust in myself and my charts by continuing to wait and buy when smart money does. Do Less Until It’s Time To Do More.
So we wait. And we wait. And we wait…I forget the rest of the quote haha.
Conclusion
Thank you for reading! I know my posts aren’t always super short, and they can sometimes be informal, but I like to write in that style. It may discredit me, but that’s okay. I write these articles to help others by sharing what I know and what I have learned in the markets. I don’t sell a course, I don’t have a social media following, and I am not trying to impress anyone. I believe in the thought of “what I know might help you and what you know might help me” so let’s make money hahaha.
If you want to check out traders who are TRULY impressive, and inspirations of mine, then check out IamIam SPyderCall and ZnWC. They all are incredible analysts and I can humbly say they produce a level of quality I can only hope to one day achieve hahaha. We’ll get there someday!
A big thanks to Mooers Lab as well for great communication in regards to feedback about any questions I have and the opportunity to speak live. I unfortunately cannot make that work with my schedule, but I am honored to have been in MooMoo’s sights to part take in this new feature.
As always, nothing what I say should be taken as financial advise, or as a “you should buy” or “you should sell”. Contact your financial advisor and assess your finances before taking a trade. You should always do your own due diligence and trust yourself more than anyone else when considering whether or not to enter a position.
Currently, BTC is around $39,970 and SPY is around $487.850.
The Fear and Greed index remains unchanged as of 11:09AM NYC.
I hope everyone makes some money and good luck in the market
