Crypto markets: What can we expect in August?

Use of dominant cycle analysis to derive cycle forecasts for Bitcoin and Nvidia

Photo by Clifford Photography on Unsplash

Understanding cycles is critical to achieving returns in the current market environment. According to many behavioral economics studies, mood can strongly influence individual behavior and decision making. Mood predisposes people for certain decision-making processes, and the mood in the crowd can lead to trends occurring. The ability to find and quantify the underlying mood cycles can enable the informed trader to predict the likelihood of a trading direction.

Normally the mood in the form of dynamic cycles in markets driven by a certain primary level of greed and fear increases and decreases positively and negatively. A current market driven mainly by fear and greed is the crypto currency market. So far, most crypto assets have no real basis for fundamental analysis. In a market like crypto, where emotions drive price movements, cycles can often be identified and used to analyze market movements.

The rise of the new crypto-assets drove demand for the underlying technologies. Nvidia’s GPUs were in high demand in crypto-currency mining and Nvidia is a perfect vehicle to track cyclic movements based on the crypto mining cycles.

Therefore, it makes sense to perform cycle analyses of Nvidia’s market prices and the underlying dominant cycles in the crypto market.

We conducted this type of analysis earlier this year and published the report in Tradersworld Magazine in the February/March/Apr 2019 issue and online on Medium. The cycle analysis forecast the downward trend until the end of 2018 and predicted a low point at the beginning of 2019. The NVDA share price reached its lowest level to date at the beginning of January 2019. A perfect economic forecast.

Now let’s see what the forecast for August 2019 might be based on the current dominant cycles in NVDA and Bitcoin as proxy for the crypto cycles. We will use a slightly different analysis to present different types of cyclical analysis. This time we use a forecast of the total cycle of the most dominant cycles. This is important because not only one dominant cycle is active. There is usually more than one dominant cycle active at different lengths that overlap and cause a more complex cyclic path.

The following figure shows the current active dominant cycle in NVDA share prices at the beginning of July 2019, as determined by our whentotrade cycle scanner.

Figure 1: NVDA cycle analysis with active dominant cycles beginning of July 2019

We have skipped cycles below 30 bars (daily chart) because we are more interested in cycles over 30 days in total. The 4 dominant cycles with a length of 36, 106, 159 and 210 were selected. Each of these cycles has a different starting point for its cycle lows, which is indicated by the information “Start bar / Start date”. When these cycles are selected, a simple composite wave diagram is generated that can be plotted into the future as shown in Figure 2.

Figure 2: NVDA stock price with dominant cycle and composite cycle forecast plot at the bottom

The composite cycle, based on the selected four cycles, is displayed at the bottom of the graph. We have also recorded the current active dominant cycle in the middle to compare it with the composite plot. The analysis shows that we see a mixed picture of how the current dominant cycle is moving down in July with an upswing on the composite plot. At the end of July, the dominant cycle and the forecast of the overall cycle begin to come into line and forecast a cyclical upswing for the August period.

We should now validate this cyclical prediction with a second correlated asset class. In this case, we have selected the crypto assets with Bitcoin as proxy. We now perform the same cycle analysis for Bitcoin to check whether or not we can detect a cycle alignment between NVDA and BTC.

Therefore, we performed a basic cycle analysis using the cycle scanner to determine the current active cycles for the Bitcoin price.

Figure 3: Dominant cycles detected by the cycle scanner for BTC beginning of July 2019

Again, we have only selected cycles longer than 30 to create a compound cycle based on the active cycles of 33, 35, 38, 48, 61 and 109. Normally, cycles 33, 35 and 38 are only set in one cycle because they also have the same amplitude. And the cycle with a length of 61 is only a multiple of the ~30-day cycle. But we would leave this knowledge about how to “choose” the right dominant cycle for another article. For simplicity’s sake, we simply “select” the cycles with the checkmark to display the composite cycle forecast.

Figure 4: Composite cycle forecast for Bitcoin

In this case, the middle window shows the composite forecast and the lower panel shows the current dominant cycle. The upper field shows the price of the BTC against the USD. These cycles are based on crypto assets and therefore have nothing to do with NVDA stock prices. If we now read the August forecast from the crypto-cycles, we can see that the composite cycle also predicts a low point at the end of July with an upswing in the composite and dominance cycle by the end of August.

Now, once again, we have two forecasts. One is based on dominant cycles for BTC and one for the NVDA share price. As we look for cycle-to-cycle adjustments, both cyclical forecasts are consistent and would signal an expected upturn in crypto assets and the NVDA share price for August 2019.

Let’s now watch out closely the price movement of both assets as the month of August starts. This analysis was done at the beginning of July and has been published on 22.July 2019.

Lars von Thienen

www.whentotrade.com