Almost 8 months ago I posted our first outlook on BTC [see: FOMC Embraces MMT.]   We noted at the time that the FOMC was “officially in the short-squeeze business” after ES came within 19 points (trading was halted there) of our 2155 target and the Dow was set to test the Nov 8, 2016 (election day) lows.

This was the perfect time to assess what unleashing massive amounts of liquidity might do to crypto.  We noted at the time that BTC should bounce from its triangle bottom (on the arithmetic chart) and return to test the top trend line at around 9,925. We also noted that BTC had rebounded back above a TL on its log chart – an encouraging sign that supported the fundamental outlook. We left off with the note:

If you believe that BTC will necessarily rise (as gold will) as QE explodes, the charts support a continuing bounce. If you believe the FOMC will do whatever it takes to support the USD and crush surrogates such as BTC and GC, then keep an eye on that TL (5,000ish) as a fairly clear stop level.

As it turned out, BTC did return to the triangle top where, as we noted in our May 28 Update on Bitcoin that it had an important decision to make. Having reached 10,074, it had held an important trend line on its arith chart…

…but had failed to break out above a fan line on its log chart.Our outlook at this point was that price action should determine the next move.

Is BTC a buy here on a potential breakout? Maybe. But, given the fact that it’s barely off its April highs, cautious types might want to wait for an actual breakout. If it occurs, there would be a small opportunity loss from not getting in here.  But better to give up a few percent than lock in a trade with a lot more downside.

The alternative for more nimble types: go long but watch that rising TL from Mar 16 on the arith chart like a hawk. If BTC drops below it, run for the hills.

It took over three weeks, but BTC eventually broke out and, in the process, completed an IH&S pattern we’ve been watching and, just this morning, tagged the pattern’s 17,150 target well ahead of our target date in mid-December.After exploding 2.65X since Mar 23, what’s next?

continued for members…

Note that the red IH&S target at 17150 is only slightly below the blue .886 Fib at 17780. So, there’s plenty of overhead resistance here which, combined with a somewhat bearish RSI chart, argues for at least a breather.On the other hand, BTC has clearly popped out of the rising pink channel from its March 13 lows – always a positive from a momentum standpoint.If I thought DXY was done dropping, I’d be inclined to take profits here. But, I don’t think it is.  My currency outlook has been consistently bearish on the USD – to a point. If TPTB are looking for strong support for DXY, they need to let it drop to 91.358 or even 89.88.

This means a substantial next leg down for USDJPY… …in order to avoid an undesirable breakout for EURUSD. It will also likely require a drop at least back to the bottom of the 10Y’s channel… …which ZN’s chart fully supports.  The tricky part is avoiding a breakdown or breakout of the 2s10s, either of which would pile on to the damage to equities being down by a USDJPY plunge.So far, VIX’s breakdown… …and CL/RB’s timely bounces… …have been enough to keep the algos on an upward path. Though there are numerous gaps down below that could come into play in the weeks and months ahead.But, most observers don’t expect Congress to sit on its hands while the coronavirus comes roaring back, deaths mount, and communities are forced to shut down. Bitcoin is clearly anticipating this and is thus accelerating to its upside targets ahead of schedule.

As it is rallies through the IH&S target, the next potential reversal point is that blue .886 at 17780. This would complete a Bat Pattern that would have been perfectly formed had the June 26, 2019 high been 13346.30 – the blue .618.

Instead BTC overshot the .618 by 533, reaching 13880 that day. It probably felt like a breakout at the time. The next day, however, BTC fell as low as 10300. By Jul 2, it had dropped as low as 9614 – a 31% correction in only 6 days.

By Mar 13, 2020, the crash (it was a crash by then) had ballooned to 72%. Why dwell on the past, besides the fact that that’s what we do here?  Breakouts are nice and often meaningful. But, it’s important to remember that BTC is very deep down the negative divergence rabbit hole.

That’s not to say it couldn’t go further. But, it has reached resistance and taken a bold leap out of an already very steep acceleration channel. It shouldn’t surprise anyone if it takes a significant breather somewhere along the way, especially if it tags the .886 – and, especially if some currency games take place after-hours.

UPDATE:  3:45 PM

BTC has reached that .886 and, by all rights, should at least backtest the pink channel. Though I’d still be more confident if DXY were close to bottoming. Regardless, the .786 at 16125 is now support – ideally around Nov 25. FWIW, by mid-December or so the SMA200 should have nearly caught up with the pink channel bottom.

I’d just feel much more confident if USDJPY and DXY had already tagged their support. DXY doesn’t really have all that far to go – less than 1% from today’s lows to 91.358. It should be able to accomplish that without much drama in BTC.  If, at that point, it begins to recover (or at least starts an extended bounce) then BTC could see some consolidation until DXY is done bouncing. So far, at least, GC is still burrowing into a triangle corner – the intersection between two channels – and is ignoring its approaching SMA200, which reaches the falling white channel bottom in the next week or less. SI has been a little better positioned for a quick drop – possibly its falling white channel bottom. Yet, it hasn’t. The best time for a textbook backtest would have been last Tuesday. For one more day, ES held onto its white channel bottom  – a very extended backtest which is now 9 sessions old. With OPEX still three sessions away, this might not be over.

VIX even managed to make a lower low today – while still closing back above the .886. For its part, CL bounced where needed to keep things on a positive note. Though, it remains to be seen whether these levels will hold once API inventory comes out after the close (consensus is for a 1.95MM build – but it should be higher.)This helped limit SPX’s losses to 17.38 after nearing a 40-pt loss earlier in the session.

GLTA.