How the mighty has fallen.
Less than 2 weeks ago Bitcoin made a new all-time high. Just yesterday though, it retraced almost the entirety of its Q3 returns as it fell back below the previous all time high level at 112,000 (for the first time since early July).
As readers of last week’s article will recall, we were heavily focused on the risk-off signal was sending us heading into Jackson Hole. We noted how BTC began to break down below its crucial 50-day SMA in the days prior to Jerome Powell’s speech at .
Reassessing the situation now, we can see that the outlook for BTC is getting bleaker by the day. Not only has it suffered a breakdown below its 50-day SMA (green line below), but Friday’s reaction after Powell’s speech appears to have been little more than a short-lived short squeeze. The ultimate result has been a bearish backtest and hefty rejection from the key level.
If there is any hope to be had for Bitcoin bulls to revisit the $120,000 region (and above) in September, it begins with a reclaim of that lost 50-day SMA prior to this Sunday’s weekly and monthly close.
Confluence From the King
Not coincidentally, the , which we also discussed last week, has been forming a base of consolidation above its 50-day SMA. This is more often than not a bearish omen for risk assets such as BTC.
Following Powell’s speech at Jackson Hole, we saw a sharp pullback in the dollar index. Critically though, it was a move that did not have any follow through as it appears to have been little more than a bullish retest of its August range lows in the 97.60 region.
So far, this appears to be a news failure event, a phenomenon that is used to describe circumstances like we saw last Friday where an asset has every fundamental reason to make a larger move—but fails to do so.
In this case the failure can be witnessed most clearly not only in DXY’s resilience, which would typically be expected fall to new range lows after something as surprising as Powell’s pivot on rate cuts at Jackson Hole, but also in the inability of BTC and risk assets at large failing to make new highs after such a stunning flip of the script.
This undoubtedly is the market sending us clear signals at present that all may not be as bullish as imagined heading into September and the close of Quarter 3, and that it would be wise to leave some dry powder on hand until we have cleaner signals from DXY and BTC, as a deeper pullback most thought unimaginable just 2 weeks ago when BTC was at all-time highs may soon be coming into play.
Inefficiency Below
For those who found themselves locked out this post-liberation day rally off the lows, BTC might be gearing up to offer you one final opportunity to get on board at a fair price….
Should price fail to reclaim the 50-day SMA into the end of August, be on the lookout for retests of 2 key levels in September.
The first is the psychological level of $100,000 which is right around where the 200-day SMA currently rests (red line), and the second is the white line you see below which represents a CME gap left behind at around $91,000 in late April when BTC first began this rally.
Now if we’re lucky enough to get such a deep pullback it will likely be as nauseating and tough to buy as the dip below $80,000 was in April, however history shows us it’ll likely be one you want to buy, as Q4, which is now just a little over a month away, has been far and away the most seasonally bullish time for BTC since inception.
This pullback is what we’re patiently waiting for in the Highstrike Trading Room where we’ve been shoring up our cash position in recent weeks and waiting for the ultimate opportunity ahead.
As readers of the Q2 thesis will recall, we were among the few bold enough to be bullish at the lows in early April and not only call for BTC to make new all-time highs, but position for it.
Since that point in April our members-only portfolio has achieved realized returns of over 41%, which is outperforming its BTC benchmark by nearly 20%, and more than 2x-ing the returns of over that same stretch of time.
If the September pullback comes as it tends to almost every year, we will be lying in wait patiently to take advantage and reposition ourselves aggressively for the Q4 boom.
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