Cryptocurrency market at new seven-week highs
January 8, 2020
The aggregate cryptocurrency market is trading much higher this week. At present, it is up over +9% for the week and has moved as high as nearly +11%. There are some significant reasons for this rally, both fundamental and technical. CoinDesk reports that a South Korean Presidential Committee is advising that regulated financial institutions be allowed to offer cryptocurrencies in the derivatives markets. This is further evidence that many nations around the globe are looking to regulate and support the new cryptocurrency market – not kill it. Another government looking to provide clarity and security in the space is the United State’s SEC (Security and Exchange Commission). The SEC, specifically the OCIE (Office of Compliance Inspections and Examinations), announced its examination priorities for 2020. While this may sound very routine and mundane, it is an extremely bullish event. What this means is that the chief financial compliance arm of the United States will be issuing guidance that specifically targets digital assets and currencies. The press release identifies some of the most critical priorities for retail traders and investors:
- Continuing to ensure compliance of entities that are focused on attracting retail investors (fees, risk disclosures, conflicts, etc.).
- In typical government ambiguous language, the OCIE is making the issue of hacking a focus point. I would imagine, given the language they have used, they mean to focus on the subject of hacked wallets and hacked exchanges.
- In the same veiled language, the other focal point of the OCIE is the transparency of market data. In a nutshell, they want to shine a light on any manipulation.
The chart above is Bitcoin’s weekly chart. We’ve already determined that the cryptocurrency market has moved in an extremely bullish manner this week. The conditions I want to call attention to are the oscillators and indicators below the candlestick chart.
RSI – I never utilize the default RSI overbought and oversold levels. They were appropriate when Wilder first created the RSI during a many years long-ranging market, but the default levels are no longer necessary. I utilize the levels as suggested by Connie Brown in her book, Technical Analysis for the Trading Professional. Because the cryptocurrency market has resumed a bull move on the weekly chart, the oversold levels are between 40 and 50. Observe that the RSI (purple line) has crossed above the fast and slow-moving averages. This is often a precipitating factor to an extended bull move on the weekly chart.
Composite Index – Continuing with the great and genius work of Connie Brown’s, the Composite Index is an indicator she created to address the limitations of the RSI, precisely its inability to measure its momentum. Without going into more detail, know that we can compare the RSI against the Composite Index to identify divergences that the RSI is unable to detect. The Composite Index line (red), like the RSI’s line, has moved above both its fast and slow-moving averages pointing to a very bullish market soon.
%B – the %B is part of John Bollinger’s suite of indicators. The %B line has crossed back above the 0.2 level, indicating that the momentum lower has stopped, and price has bounced off the lower band.