Bitcoin Trading Alert: This Move up Might Be Less Bullish Than You Think

By: Mike McAra | Fri, May 9, 2014
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Bitcoin Trading Alert originally published on May 9, 2014, 10:54 AM


 

To the point: we still support short speculative positions in the Bitcoin market, stop-loss at $470.

Bitcoin is sometimes viewed as a highly disruptive innovation with the potential to change the payment system. While it surely provides a lot of opportunities, it doesn't necessarily mean that it will cut the banks out of the system. Bloomberg posted a piece yesterday in which it argues that the very banks that would feel any kind of threat from Bitcoin are currently studying the innovative nature of Bitcoin to possibly come up with their own kinds of seamless payment systems:

While Jamie Dimon and Warren Buffett express doubts about bitcoin, executives running the financial industry's back offices are looking at mimicking the virtual currency's methods of moving money quickly and cheaply.

FIS, a provider of systems used by banks to handle payments, is examining whether a public ledger like bitcoin's could help securely move funds on existing networks, Fred Brothers, the firm's chief innovation officer, said in an interview. Fiserv Inc. (FISV), a provider of technology for payments and accounts, is examining bitcoin's use of encryption to ensure transfers are secure, said Marc West, a senior vice president.

(...)

"It's safe to say that every bank is looking at what's going on with bitcoin and those types of technologies," said Steve Kenneally, a vice president at the American Bankers Association. "Most of the larger banks are investigating it. The larger the banks, the further along they are."

This is not very surprising as competition dictates that market players will adapt to the changing conditions. The incumbent middlemen are trying to figure out what kind of threat to their operations Bitcoin might be and to turn this threat into an opportunity.

What is not clear is the extent to which these efforts will succeed. Currently, Bitcoin is still the dominating alternative currency in spite of a slew of alt-coins mushrooming up in the last couple of years. So, any efforts by banks, payment companies or other market players are not immediately guaranteed to take off. For now, Bitcoin is the currency of choice as far as cryptocurrencies are concerned.

Let's take a look at today's charts.

BITSTAMPUSD Bitcoin
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On BitStamp, Bitcoin edged 0.5% down yesterday which could be an indication that the short-term strength was over. This was further supported by the fact that the volume was almost halved when compared with that of the previous day. There was no strong move down, however.

Today, we've seen a move up (this is written before 10:00 a.m. EDT). Not a very strong one, 2.1% so far. Does this change anything as far as our suggested short position is concerned? Not really. The move hasn't even brought Bitcoin back above $450 and, more importantly, it has taken place on weak volume, weaker than yesterday. So, another day of appreciation on weak volume might just mean that we're getting closer to the short-term top (if this can even be called a top), and the bearish short-term outlook remains unchanged.

BTCEUSD Bitcoin BTC-e (USD)
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On BTC-e, Bitcoin went 0.2% up yesterday on falling volume. This kind of move doesn't count as any sort of meaningful indication on its own but considered together with the recent appreciation, it seemed that it was actually more bearish than not.

Today, there has been appreciation, 1.4% but the move hasn't been strong, the volume has been not even half of what was seen yesterday. The 1.4% seen today doesn't look as anything more than the final stage of a move up and might be followed by declines. If you recall what we wrote yesterday:

Today, we've seen some more appreciation (this is written at 10:10 a.m. EDT) but it hasn't been particularly strong. What is more, the volume is now significantly lower than it was yesterday. Consequently, we don't view today's move as bullish. Not only that. We actually view today's move (so far) as bearish for the short term.

This seems not to have been invalidated by the events of today (so far). Consequently, we still think that the short speculative positions we suggested yesterday might become profitable in the near future.

Summing up, in our opinion short speculative positions might be the way to go now.

Trading position (short-term, our opinion): short, stop-loss at $470. We expect the move up to be reversed and more declines to follow in the near future.

Regards,

 


 

Mike McAra

Author: Mike McAra

Mike McAra
Bitcoin Trading Strategist
Bitcoin Trading Alerts at SunshineProfits.com

Mike is a quantitative analyst focused on the economic reality, not theoretical models. His investment thinking is grounded on empirical evidence and common sense.

A holder of 2 master's degrees, in quantitative methods and finance, he researches economic uncertainty, portfolio management, and investor behavior.

Mike joined Sunshine Profits in 2009. He develops innovative investment tools, verifies usefulness of popular techniques, and provides thorough internal research. His quantitative and financial background, along with experience in the gold market and personal interest in bitcoin led to the launch of our Bitcoin Trading Alert service.

Mike passed the first CFA exam at the first attempt with the highest calculated percentage range in the following areas: Alternative Investments, Corporate Finance, Derivatives, Equity Investments, Ethical & Professional Standards, Financial Reporting & Analysis, Portfolio Management, Quantitative Methods.

Disclaimer: All essays, research and information found above represent analyses and opinions of Mike McAra and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mike McAra and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. McAra is not a Registered Securities Advisor. By reading Mike McAra's reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Mike McAra, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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