We began last week arguing the case for short-term patience while emphasizing that the primary trends have shifted higher.
As we move into the middle of February, seasonality trends suggest a choppy couple of weeks ahead.
At the same time, momentum in the US dollar has accumulated in recent days, as we observe some mild selling pressure in crypto markets. With the CPI release on Tuesday, it’s reasonable to expect this volatility to continue.
This comes as Bitcoin retraces following its first retest of the August 2022 highs.
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Lost Password?The expectation is a continuation of short-term choppy price action in the context of a now-higher primary trend.
So long as Bitcoin remains above its prior-cycle highs and June lows near 18,000, we have conviction to be buying any weakness should it manifest in this seasonally weak month.
Key Takeaways
- After Bitcoin got rejected at a critical level of resistance, it sits on top of minor support at 21,500 heading into the upcoming CPI release. We like buying weakness, provided that Bitcoin remains above 18,000.
- Seasonality trends suggest weakness in February is perfectly normal.
- The US dollar, which remains negatively correlated to both equities and crypto markets, is showing short-term momentum. A strong dollar is a headwind for risk assets.
- Similar to Bitcoin, altcoins have retraced on the retest of a minor resistance level.
Bitcoin Gets Rejected
We were closely monitoring this retest of 24,500 coming into last week; with prices stalling at this zone of supply, we were patient with the short-term price action.
We’re almost never in the business of trying to perfectly catch market turning points. Too often those setups are low-conviction trades where your invalidations will quickly get hit.
Instead, we look to catch the meat of a move by participating in the direction of the trend rather than against it.
The primary avenue we can execute these trades is through leaning on breakouts. But we can also look to add exposure on the first higher low of the new trend.
If price bounces off 18,000 in the coming weeks, it would mark the first long-term higher high in over a year.
Provided that buyers defend this 18,000 demand zone, we have conviction in buying into weakness should it manifest.
This would only support our case that a structural shift has occurred in these markets.
In the short term, all eyes are on 21,500.
With the CPI report set to be released on Tuesday, should price fail to bounce here, the 18,000-to-19,000 zone would be our next target.
Seasonality Supports a Messy February
When assessing the underlying seasonality trends, the data reflects that a messy February is perfectly normal.
Below is the average performance for the S&P 500 between 1950 and 2022. Clearly, the trend is rather choppy.
This comes within the context of an overall bullish season trend in the pre-election year, which is the most bullish part of the 4-year cycle.
Here are our thoughts on the current seasonality trends we outlined in a recent note:
Since 1950, whenever the S&P500 has completed the Trifecta coming off a down year, the stock market has never been down. And it’s up almost 27% on average, more than 3 times the average annual rate of return for the S&P500.
US Dollar Regains Momentum
It’s no surprise to see crypto roll over while the dollar has recently reasserted its strength.
The two have remained negatively correlated for months on end, and it’s likely this inverse correlation will persist.
The US Dollar Index $DXY has put in a failed breakdown and quickly rebounding.
Should the dollar continue to track higher, expect crypto to do the opposite.
Altcoins Pause at a Logical Level
Alongside Bitcoin, we’ve seen this selling pressure manifest down the cap scale, with our altcoin index pausing at its November highs.
Many coins have posted mighty gains off the lows; a digestion of these gains is absolutely healthy to see here.
As with Bitcoin, provided our altcoin index remains above its June lows, we like buying weakness in names exhibiting strength.
Last week, we outlined a long setup in Polygon $MATIC should we see prices dip back toward 0.90.
You can click here to see that trade setup.
Be sure to reach out if you have any questions.
Allstarcharts Team
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