Cryptos pushing extremes in the oscillators don’t mean extremes in price
– If the cryptocurrency market experiences a corrective move, it needs to be a fast and violent move south.
– A fast, almost flash-crash-like move is necessary to create the conditions required to continue the bull market.
– Today’s analysis will review the conditions and some possible price levels to look for in the future for the select cryptocurrencies.
Above: Polkadot (DOTUSD)
Polkadot has had a fantastic run over the last 45+ trading days. It’s moved over 100% from its July 20th swing low of $10.35. But all bull moves have bearish corrections – and we’re likely to see a correction here very soon. It may not be popular to say this, but fast flash-crash movements are good in bull markets. Why? Because they are quick. Drawn-out sell-offs indicate impending bear markets—the arrows on the chart point to two distinct areas. First, the arrow on the candlestick chart points to a confluence zone at the $18.50 value area. $18.50 is roughly where the top of the Cloud (Senkou Span B) and the 2021 VPOC exist, so it’s a great support level. Ideally, Polkadot would move in that direction quickly – over no more than seven days. Why? That brings us to the blue arrow on the Composite Index.
When trends experience corrections, the oscillator movements are generally wildly exaggerated compared to price action. In other words, hidden divergences develop, which create the conditions and warning signs needed to re-enter in the direction of the prior trend. For example, suppose Polkadot can move to the $18.50 area on the candlestick chart in less than a week. In that case, the Composite Index will likely be trading near the end of the arrow, which will put the Composite Index equal to or slightly below the July 20th low. This means that the candlestick chart will have a higher low, while the Composite Index (and likely the RSI) will have a lower low. That would create hidden bullish divergence. When you have hidden bullish divergence against a strong support level, you have an excellent opportunity for a low-risk entry to resume the trend.
Above: ChainLink (LINKUSD)
ChainLink has a very similar, almost identical chart setup as Polkadot. The primary technical condition on ChainLink’s chart is the location of the 2021 VPOC. For ChainLink, its 2021 VPOC is directly below the Tuesday (August 24th) candlestick at $25.77. If ChainLink experiences a close below the VPOC, ChainLink may have a significant, very fast drop down the end of the blue arrow at $20.50. $20.50 is a normal psychological price level, and its support structure is enhanced by Senkou Span B and the 38.2% Fibonacci Retracement. Depending on how low ChainLink can move, we should expect the low to be established around August 29th. August 29th is where the Kumo Twist occurs and is often a reversal area for any trending market.