As technicians, our job is to respond and react to the evidence in front of us.

The market has a funny way of punishing those who let their ego and opinions drive their decision-making instead of objectively following money flow.

We say it over and over again: As a trader, your only job is to follow money flow. Everything else is noise.

This morning, we can't help but think about the resolution from this rally seen in a handful of crypto stocks. I think Microstrategy $MSTR and Coinbase $COIN show it better than any other.

What will it be?

If you've been involved with crypto, chances are you've encountered a headline like this:

Crypto investors seem to appreciate these statistics. But most likely aren't aware that the mechanism of forced selling can provide an incredible wealth of information.

Believe it or not, we can use this data to manage risk, find future support and resistance zones, and even help piece together a macro directional bias.

First things first, what is a liquidation?

In yesterday's note, we outlined our macro Bitcoin/crypto thesis.

In essence, the market is leaving a considerable oversold zone driven by modestly strong spot flows by whales and institutions.

Now that momentum is back in favor of the bulls on the break of 41,000, we're beginning to deploy our elevated cash positions back into Bitcoin and a variety of trades.

In today's note, we'll discuss a few names we like monitoring for long and short positions and how we're approaching price action from a tactical perspective.

Let's begin by addressing shorter time frame developments.

In last week's report, we outlined a handful of bullish developments appearing as we waited for price action to respond.

We discussed the fact that the institutional money that left in October is flowing back, exchanges are seeing modest outflows, and traditional markets are looking prime for a tactical bounce.

Since then, we've seen Bitcoin rally to our inflection point between 41,000 and 42,000.

With momentum turning back in the favor of the bulls, the highest-likelihood scenario looks to be a few weeks of sideways price action ahead of further upside follow-through.

This is the video recording of our February 4, 2022, All Star Charts Crypto Weekly Strategy Session.

Picture this.

One of your close friends asks you about technical analysis. What do technicians do? "What even is technical analysis?" they ask.

Your first instinct is to dive down the rabbit hole of charts, indicators, and intermarket analysis. After your rambling, your friend is even more confused than before they asked.

That's the common mistake, one of the primary reasons why technical analysis often gets such a bad rap.

In the same way you wouldn't describe geography as the study of seismometers or biology as the field of microscopes, you'd be selling technical analysis short by arguing it's the study of indicators.

If you've been involved with crypto, you've probably heard the term "whales" thrown around countless times. There's an almost conspiracy-like aura surrounding this cohort of Bitcoin holders.

With an incredible amount of attention placed on this trader cohort, it's important to understand their role in driving price action, macro trends, and more importantly, following their movements.

So, first things first, what even is a "whale"?

A few weeks ago, we outlined our patient approach in the altcoins.

Our argument was as follows:

We’re approaching this market with a high degree of patience until a higher conviction setup has been formed.

This remains a messy, low-conviction tape to be positioned aggressively long.

Since then, most alts have trended considerably lower, and there's been little reason to be heroic in buying dips.

But, as we discussed in yesterday's note, there are a few bullish data points creeping in that could turn the tide for the alts.

Many names now sit at support, while others are in the process of putting in failed breakdowns sporting bullish momentum divergences.

In simple English, this is a good first stepping stone to carving out tradable bottoms.

For some time, we've had a neutral outlook and have been in heavy cash positions.

There's been little change in our approach since the publication of our previous Monday report, but we have seen a handful of data points in favor of the bulls.

As we'll cover in today's report, the institutional capital that left in October is starting to come back in, and exchanges have seen a moderate outflow over the last week.

Moreover, traditional markets seem set up for a tactical bounce. What has been a headwind could be turning into a tailwind.

These are great first stepping stones toward a more constructive picture for the crypto market, but one of our two criteria for more aggressive long positions has not been met as of yet. That is:

• Bitcoin dips to 29,000;
• strength above 42,000.

This is a tape that still commands patience.

Let's dive in.

This is the video recording of our January 28, 2022, All Star Charts Crypto Weekly Strategy Session.

Editor's Note: Before we dive into the substance of today's note, I want to be sure you're all aware that our Crypto Friday Live Strategy Session will get started tomorrow, January 28, at 3:00 p.m. ET.

See you tomorrow at 3:00 p.m. ET.

Relative strength.

We talk about it all the time -- and for good reason. If these last few years have reinforced anything, it's the power and efficacy of incorporating relative strength into our approach.

You can never outperform if you don't hold assets that are doing exactly that, outperforming.

Given that trends are more likely to continue than reverse, if a group of assets have outperformed their alternatives, it's more likely than not they'll continue to do so.

One of the primary components of our work as technical analysts here at All Star Charts is finding favorable opportunities through relative strength: stocks, commodities, sectors, and, more recently, in cryptocurrencies.

One of the most underappreciated elements about Bitcoin is the transparency of transactions. This enables us to gain deep insights into the behavior of investors and users of the network.

The growing industry of on-chain analysis looks to address the concerns of those who wish to categorize, cluster, and ultimately analyze entity behavior to find increasingly reliable and actionable signals.

Blockchain mechanisms mean analysts and traders have access to a wide array of data that isn't possible to replicate in traditional asset classes, like stocks, commodities, and bonds.

One of the key metrics we've found to be of tremendous value is quantifying investor supply and demand through the use of supply shock.

In today's note, we'll outline how we use this data to supplement our traditional price work and technical analysis.