Tips for traders, 28 July 2020
Mitch McConnell recently announced more stimulus amounting $1 trillion. This could add another flood of liquidity flood to the market.
The VIX (the volatility index of the S&P 500) has dropped very close to 24, the ‘euphoric phase’. This indicates that the market is not in a very fearful mode. Indices in the US like Dow Jones Industrial Average and S&P 500 are close to record highs, while the Nasdaq has broken its record high. This has created a vague appreciation of stocks, which are now overvalued.
This overvaluation of stocks has probably driven liquidity to other financial instruments like commodities (gold, silver, oil) and also other assets like cryptocurrencies, especially bitcoin. With the extra liquidity that will come, there is another possibility of continuation, which can extend the appreciation of commodities and cryptocurrencies.
BTC has been inside or close to Bollinger Bands (92,1,1) and has been swinging near its 92 SMA (1). Finally in recent days, the price has breached Bollinger Bands. This has marked that the price is about to start a trending move. At the same time, the price has broken its range very significantly in a very short period of time.
Waiting for retracement first before entry and following the price directly is an option because risk is quite high now. For now, rejection patterns like hammers, bullish engulfings or morning stars can be signals for entry.