Issue 59 – Swing Highs and Lows Tell a Story

The highs and lows in a market tell you a story. They aren’t just points on a chart where you wish you would’ve bought or sold.

Each high and low means something, especially when you start to compare them.

That’s exactly what we’re doing in today’s newsletter. I’ll show you how I interpret a market’s strength by comparing recent swing highs. It’s the same technique I used to identify weakness on Bitcoin in mid-April.

We’ll then wrap things up with a few charts, including BTC, ETH, DOT, and SOL.

Let’s get started!

The Value in Comparing a Market’s Highs

The swing highs and lows in a market are severely undervalued.

We all know you want to buy low and sell high. However, the highs and lows in a market can be useful beyond trying to identify where to buy or sell.

Remember this tweet from April?

I don’t love the look of the $BTC chart so far in 2021.

I’m still bullish overall and think we have five months left in this bull market.

But the massive bearish divergence, decreasing volume, and a failure to extend rallies isn’t a great look for the short term. pic.twitter.com/jKLcnANqgS

— Justin Bennett (@JustinBennettFX) April 17, 2021

Part of the reason I didn’t like the way Bitcoin looked at the time was due to the market’s failure to extend rallies.

Yes, BTC was still carving higher highs. But on a relative basis, those highs were diminishing.

Said differently, each swing high was less impressive than the last. And that’s a sign of fatigue.

Fast forward to today, and we can see something similar playing out on the BTCUSDT intraday chart.

Now, I’m in no way saying that what happened in April and May is about to repeat.

The April/May selloff was the result of many months of fatigue. What we’re dealing with now is a few weeks of potential weakness. That’s a big difference!

That said, the concept is the same. A failure to extend rallies is something I’m going to pay attention to every single time, regardless of the time frame.

Of course, without confirmation, none of this matters. In the case of BTCUSDT, that confirmation is a close below the ascending trend line near $47,000.

Bitcoin (BTCUSDT)

Bitcoin has regained most of what it lost on Tuesday. However, BTC faces a critical test near $49,000.

That area should serve as resistance. Support comes in at the ascending trend line near $47,000. It’s no coincidence that it’s also a key horizontal area.

A close below that would open up the $42,500 to $44,000 region. Of course, below that is the $40,000 weekly area.

We’ll see where BTC goes from here, but right now, the market is having trouble extending rallies. We’ve seen this before on a much larger scale. It served as a warning sign to bulls then, and I don’t see why it doesn’t this time.

Ethereum (ETHUSDT)

ETHUSDT closed above the $3,160 pivot on Tuesday, so it’s no surprise to see today’s bounce.

As a swing trader, this is the kind of sideways action I try to avoid. Yes, the uptrend is intact, but the risk/reward at current levels is less than ideal.

Furthermore, there’s been significant bearish divergence over the last few weeks. For me, the ideal scenario would be a pullback into the $2,900 support area for a long.

Until then, I’m not interested in ETH from a trading standpoint.

Polkadot (DOTUSDT)

DOT bounced today from the ascending trend line I mentioned in Tuesday’s newsletter. That level comes in near $25.

However, there are actually two trend lines in play. One shows well on the log chart, the other on linear.

The log trend line was broken yesterday and should now serve as resistance near $27.50. The linear trend line is the one at $25.

A break below $25 would expose $23.30 with a close below that opening up the $20 region.

DOTUSDT would need to clear the $28 to $29 resistance area to break higher toward $35. I personally think we see a pullback before that occurs.

Solana (SOLUSDT)

SOL is still mostly sideways. However, the market did carve a bearish engulfing day on Tuesday. It also closed below the $72.65 level. Both are somewhat bearish signs.

We saw SOLUSDT dip again this morning, but Bitcoin’s bounce is helping to prop up the entire market at the moment.

I’m interested in buying SOL, but not until we get a healthy pullback. In my opinion, that likely means a move to the $56 to $58 region.

I have a small short position on in the meantime. It began yesterday at $74.55. I took a partial profit on that this morning. I also had another entry overnight at $72.50. I took part of that off this morning as well.

I’m keeping that position light and booking profits as they come since it’s a counter-trend idea.

Recommended Platforms

Disclosure: The links below are affiliate links. Meaning, at no additional cost to you, I will earn a commission if you click through and sign up.

Bybit

This is where I do most of my crypto trading. Bybit has the best platform out there, in my opinion, and is constantly adding new features and assets to trade. (You’ll need to use a VPN if they aren’t available in your country)