The Line Holds

Fig. 1

There is no fortune made in a day, and no ruin in a day. Let me begin where I left off — with the record.

In the previous issue I set down two facts of the weekly book: the close above the 50 moving average, and the break in market structure, both on the weekly timeframe. I said then that certain signals were still owed to us, and had not yet shown their faces:

• a higher low
• the 50 week moving average pointing upwards

All signals of the ledger are now published in The Pendulum and the Ledger.

The Black Swan

This weekly close marks the first of those signals to arrive. The recent Binance hack is to be counted a black swan, and though the matter is still fresh, the market took the blow and stood.

A man who has kept books through a panic knows the rule: when an account is struck, the size of the damage matters less than what the man does next. So it is here. It is not the particular level, nor the specific event, that deserves the entry in the book. It is the reaction to it.

The black swan aforementioned has given the market cause to fall back to the 50 week moving average, and the price is holding there as I write.

The Test

Is it too soon to say that average will hold? In all honesty, yes. I will not dress the matter up.

But consider the manner in which such a judgment must be made. When a trend is to be tested, a man decides at the extremes — as close to invalidation as he can stand. If I were a betting man, this is where I would place my money. Invalidation is nearby. The loss is small and it is known, and so the reward outweighs the risk.

We have had the higher high. We found a black swan to give us a higher low. Now we wait for confirmation — for price to move up and away from these levels. At that point the higher low is set, and the trend is fortified.

The Signals Against

From there a man may look for other signals that hint his reading is right — but let him heed the warning. A man hunting confluence is a man open to flattering himself, and the books are full of men who found precisely the evidence they went looking for. So look also for the signals that stand against you.

Let us begin with the signals that oppose the idea:

• $80,000 was lost — a key psychological level
• the 50 day moving average was lost, and tested from the underside before heading lower

The Signals For

Now let us cast an eye over the signals in favour of $76,500 as a higher low:

• Weekly and monthly RSI have not dropped below 50
• the 50 week moving average is being respected — so far
• further downside would still support a higher low, even to $60,000 levels
• $76,500 could be considered the long term range low (see image), though that is another conversation entirely
• the fear and greed index — the sentiment of the crowd — stands in fear, and the crowd is often wrong at the extremes of the spectrum

I will be watching closely for any further downside in the price. But let it be known: this level, and the signals and events that came before it, mark a fine point at which to increase exposure. It is opportunities of this kind that, looked back upon, appear obvious.

The man who follows a system is never at the mercy of the market. He may be wrong. He will not be lost.