Hi everyone!
One of the messages that I always see in the Splinterlands discord server recently is "why is SPS dumping?". Unfortunately, that question always sparks a flurry of unnecessary conversations ranging from "just hodl" to outright conspiracy theories such as imaginary whales or the game devs pushing price down for whatever reason. While I don't discount that some manipulation is at play (note: there always is), the more pertinent thing I see is a lack of knowledge when it comes to reading and reacting to price action among a large majority of people.
This is why starting today, I'm starting a technical analysis blog tracking SPS. The purpose is to use what I know about trading and market psychology to not only explain what is happening in terms of price action, but more importantly, educate people to think in multiple scenarios or probabilities, allowing them to be more rational and methodical in their investment journeys. If you're ready, let's begin.
Note: NFA!!! FOR EDUCATIONAL PURPOSES ONLY!
When in doubt, zoom out: SPS' past 1 month journey
First, it is important to zoom out to have a good picture of what SPS has been doing over the past 1 month.
Over the past 1 month or so, SPS has been undergoing a classic Elliot Wave Theory journey. For those of you who are not aware, Elliot Wave Theory is typically comprised of 5 waves of alternating impulsive and corrective waves. Once the 5th wave is done, it then undergoes a corrective phase composed of 3 waves, or what most people call, ABC. After our run towards 1 dollar per SPS, it signalled the end of the 5th wave, and right now we are nearing the end of the C correction, most of the time the nastiest of them all.
Most people think the goal during this phase is to find the bottom. That's typically impossible, because we only really find the bottom on hindsight. The trick to navigating downtrends is not timing the bottom, but having confidence that it's over and we have reversed course.
Break the trend, make a new friend
There's a popular saying in the trading community: "A pattern that's in play is valid until invalidated away". That goes for both bullish uptrends and bearish downtrends.
Currently, SPS price is currently ranging in what we call a descending channel. As long as the price keeps between those trend lines, we will continue to see the pattern in play, with a potential support level at around 0.50+ cents. You may be wondering, why .50? That's because if you look to the left, that's where price last hung out for a while.
Ok we know what's happening. What do we need to look out for? One, we need to break the trend. SPS price has to cut through the upper black trendline currently providing resistance. Earlier today there was an attempt by the bulls to break it, but unfortunately, the price went back to the descending channel, commonly known as a throwback.
What we need to see is similar to the attempted trend break above. There's a clear trend break, and even if the price goes lower, it uses the upper black trendline as support and holds it. That gives confidence to the market that we are ready to move on and break the downward spiral, ending the C wave. And as they commonly say, "Break the trend, make a new friend".
Happy Sunday everyone! Take care all!