Bitcoin's 24-Hour Crash: FCA Warning Was a Slap in the Face. But It Wasn't the Cause.

See what 'allowed' for a turn down in the immediate future

By Elliott Wave International

In case you blinked over the last two days, bitcoin bulls had their hat abruptly handed to them when the cryptocurrency plummeted a jarring 26% in 48 hours.

The grisly details (or, here's how this bearish opportunity unfolded, for the few traders who were ready):

• The selloff was the market's worst two-day decline since the start of the coronavirus in March 2020.
• The crash took prices $10,000 down from their all-time high near $42,000 set on Friday, January 8.
• And, all told, the move erased nearly $185 billion from bitcoin's value (Jan. 11 Bloomberg); for reference, that's the entire net worth of the richest man on Earth, Elon Musk.

After the dust settled, mainstream analysts cited a "cause" for the cryptocurrency's plunge; a January 11 warning by London's Financial Conduct Authority (FCA) against all things crypto. Explained the January 11 UK Sunday Express:

"The plunge comes amid warnings from the FCA about the risks of investing in cryptocurrency. The UK-based regulatory body said on Monday investing in crypto assets 'involves taking very high risks with investors' money'."

To clarify: The FCA didn't suggest those risks were negotiable. It said that consumers who invest in these types of products should QUOTE "be prepared to lose all their money." (Jan. 11, The Guardian)

That's a slap in bitcoin's face if ever there was one. But it's not the tone of the warning that's so jarring. It's the timing.

For one, it comes a week after big bank behemoth J.P. Morgan made one of the boldest, bullish bitcoin forecasts since the 2017 glory days. See:

And secondly, it came three days after the start of bitcoin's recent turn down; prices had already collapsed 20% from their January 8 high by the time the FCA's warning went viral.

For bitcoin, this bearish event was a slap in the face on a face that already had two black eyes from being been punched in the nose.

As for seeing the downside potential in bitcoin -- before the tide turned -- we refer to our January 8 Crypto Pro Service. There, our analysts presented the following price chart of BTC, which showed how the topping Elliott wave pattern allowed for the possibility that a five-wave rally was complete at the current high. In this case, the next move could be a turn lower -- that's how the Elliott wave pattern unfolds. We wrote:

"It will require a close below 35726.82 to suggest five waves are complete from 28383.16 and BTC is heading lower as per the alternate..."

From there, BTC began to weaken. With prices near the 37,000 level, our January 10 Crypto Pro Service intraday update set the stage for a significant decline that could take prices between 1,000 to 4,000 dollars lower. Said Crypto Pro Service:

"We're counting the peak this weekend at 41933 as the end of wave iii of (v), with BTC now correcting in wave iv. It is counted as a flat pattern and could draw prices towards 32000-36000 before it ends."

This next chart shows what happened next:

The great divide between bitcoin ultra bulls and ultra bears won't be closing anytime soon. In fact, it will only get wider as volatility grows. But for traders, loyalty isn't to one group or another; it's to the next high-confident set up, be it up or down.

Our free report "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" explains more. Each chapter shows you the power of the Elliott Wave Principle to explain some of the recent moves in Bitcoin, Litecoin and Ethereum -- and how you can apply this method in your own trading, going forward. "Get instant access

Here's Why Blind Contrarianism Failed in 2020

There is only one instance when the investing crowd is right

By Elliott Wave International

Yes, there are many times when the market's Elliott wave structure suggests that an investor should take a position "against the crowd," or put another way, be a contrarian.

Prime examples are at market bottoms and tops.

However, keep this in mind from a classic Global Market Perspective, a monthly Elliott Wave International publication which provides analysis of 50-plus worldwide markets:

[S]trict adherence to the wave model habitually puts wave analysts where they should be: against the market crowd. But not always. At specific points in the market's wave structure, wave analysts run with the herd.

A prime example of when Elliott wave practitioners have a lot of company is during the most severe part of a bear market. At such times, the Elliott wave model suggests that more downside is likely ahead and the crowd is likewise fully aware that the market is in the grip of a ferocious bear. The same applies to the strongest part of a bull market.

So, following the Elliott wave model and consistent contrarianism are not the same.

Indeed, read this quote from our just-published January Global Market Perspective:

Blind contrarianism failed in 2020, because some of the world's most influential benchmarks -- the DJIA in the United States, the DAX in Europe, and the Shenzhen Composite in China -- spent much of the year rallying in small-degree third waves.

That issue of the Global Market Perspective went on to show this chart and said:

Turns out that 2020 was not just a bad year for contrary investing, it was the strategy's worst year on record.

The contrary strategy's best years are also illustrative. The technique returned 80% as the first technology bubble burst in 2000, and it made 60% in 2009, as equities rallied following the 2008-09 financial crisis. The year 2016 was also a good year for contrarians who wagered that cyclical stocks would benefit most from an economic expansion.

What about major global markets in 2021? Will contrarian investing be successful for the market or markets in which you are interested? In other words, should you be selling when others are buying, and vice versa?

Elliott wave analysis can help you answer those questions.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to minimum.

If you'd like to find out about "Elliott's highly specific rules," you can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior for free.

That's right -- Elliott Wave International has made this Wall Street classic available to Club EWI members for free. Don't worry -- membership is also free. Moreover, Club EWI members enjoy free access to a wealth of Elliott wave educational resources.

Join the approximately 350,000 Club EWI members who are already gaining insights into trading and investing from an Elliott wave perspective by following this link: Elliott Wave Principle: Key to Market Behavior (free access now).

This article was syndicated by Elliott Wave International and was originally published under the headline Here's Why Blind Contrarianism Failed in 2020. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus.

"The market has a law of its own. It is not propelled by the external causality..."

By Elliott Wave International

Elliott Wave International has long held -- and proven -- that events outside of the market do not determine the long-term trend of prices. In the short term, news and events can, and often do, contribute to market volatility -- although, not always, and not always "logically." But then the long-term trend resumes.

We've shown countless examples of that on these pages -- and here's one of the latest: the lockdowns related to covid. One might conclude that investors would view the business interruptions resulting from a lockdown as a sign that stock prices would decline. Hence, a selloff would occur with each lockdown announcement.

However, the evidence shows no correlation between the behavior of the market and lockdowns.

Here's a chart and commentary from the December Global Market Perspective, an Elliott Wave International monthly publication which covers 50-plus markets worldwide:

Notice the non-relationship between the FTSE 100 and the UK Stringency Index, which records the number and strictness of the British government's policies in fighting coronavirus. Stocks crashed from February to March of this year -- with almost no restrictions in place -- and then rallied from March through May during Britain's tightest lockdown to date. Shares gradually declined alongside the government's receding restrictions from June through early October. And as lockdowns tightened in early October, the FTSE 100 initially fell and then rallied. In other words, perfect foreknowledge of the largest, most extensive societal lockdown in modern history (and perhaps in all of human history) would have provided no useful information whatsoever for investors to use to trade stocks.

As Elliott Wave International has reiterated many times, financial markets often move ahead of the news. They are not driven by the news; the mainstream simply uses the news to rationalize what the markets have already done.

Yes, there are indeed trading days when stock markets rise when the news is "good." Yet, there are many times when the news is "good" and stocks fall, and vice versa.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. ...

The market's progression unfolds in waves. Waves are patterns of directional movement.

Would you like to read the entire online version of the book for free?

You can do so if you're a Club EWI member. If you're not, signup is easy and free. Club EWI members enjoy unlimited and free access to a wealth of Elliott wave educational resources.

Sign up now and start tapping into the insights of Elliott Wave Principle: Key to Market Behavior -- 100% free.

Simply follow this link now: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus.. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Cheers for the 2021 Stock Market and These "Great Expectations"

Insights into "the most speculative of strategies ... among the most speculative of traders"

By Elliott Wave International

We're reminded during this time of year of the wonderful classic by Charles Dickens, "A Christmas Carol."

As you probably know, the Victorian-era British novelist also wrote several other books, including "Great Expectations."

That title is also a fitting description of the mindset of many stock market investors as they raise their glass to 2021: "Cheers to the market!"

One example of the positive expectations for the market is from a BMO Capital Markets' strategist (Yahoo News, Dec. 7):

"Expect another year of double-digit gains. We anticipate that 2021 has the potential to be one of the best years ever in terms of earnings growth."

Yet another is from a Goldman Sachs' strategist:

"We recommend overweights in Information Technology, Health Care, Industrials and Materials."

Several other professionals have expressed "great expectations" for stocks in 2021.

But novice speculators are also on board.

The December Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and social trends, showed this chart from SentimenTrader and said:

The chart shows that traders with only $9000 to their names are aggressive to a record degree.

The Theorist goes on to quote SentimenTrader:

"Among the smallest of traders, 54% of volume flowed into buying call options to open over the past week. That's a record amount of focus among the most speculative of strategies and among the most speculative of traders. The 5-year chart shows just how much this behavior has ticked up." -- SentimenTrader

Great expectations, indeed!

Yet, we urge you to think independently about financial markets as we enter 2021.

The Elliott Wave Principle can help you do just that.

Here's a quote from Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

The practical goal of any analytical method is to identify market lows suitable for buying (or covering shorts) and market highs suitable for selling (or selling short). When developing a system of trading or investing, you should adopt certain patterns of thought that will help you remain both flexible and decisive, both defensive and aggressive, depending upon the demands of the situation. The Elliott Wave Principle is not such a system, but is unparalleled as a basis for creating one.

Despite the fact that many analysts do not treat it as such, the Wave Principle is by all means an objective study, or as Collins put it, "a disciplined form of technical analysis."

If you'd like to read the entire book, all that's required for free access to the online version is a Club EWI membership. Club EWI, which is free to join, is the world's largest Elliott wave educational community. Members enjoy a wealth of insights into financial markets, trading and investing.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Cheers for the 2021 Stock Market and These "Great Expectations". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.