Fundamental vs. technical analysis
N.B.! My analys is not an investment recommendation, but reflections on the market.
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That's the million dollar question, right? To answer, we must look at the fundamentals, but can also get some clues from chart (or "technical") analysis. I learned a bit of both when I worked at the investor relations department of a one of the largest integrated oil and gas companies in the world from 2004 to 2007. Through technical analysis, I then predicted that oil prices would hit USD 150 in the coming months, at a time it was being negotiated at an all time (nominal price) high of USD 70. My colleagues called me crazy. I should still have the annotated charts in a corrupted hard drive, which I hope to recover one day.
There are those people who love technical analysis, and those who hate it. The critics say it is useless: it only reflects past price movements, which are no predictor of future developments. Furthermore, from an economic theory perspective (the efficient market hypothesis), what matters are fundamental issues: those factors that impact on the real aspects of the market or asset. For instance, a war is a fundamental issue for almost any asset (from oil through agricultural and mineral commodities to weapon company stocks) and a new regulation of the crypto market is a fundamental issue for bitcoin. Yet, it often seems that the prices do respect "technical" levels (supports and resistances), indicators signalling overselling/overbuying, or figures like triangles and channels. How come?
One explanation is herd behaviour: everybody in the market sees the same technical formations, which triggers their decisions. This of courses results in a self-fulfilling prophecy: if all agents sell when bitcoin reaches USD 42k, then its prices will fall and the "resistance" materializes itself out of thin air. Afterall, markets are not so "perfect" as in theory: they do react to non-material information, like technical indicators, because agents are not rational.
My technical set-up
All this preamble to show my own set up for bitcoin. I mix an array of simple moving averages, with Fibonacci retracements, relative strength index, stochastic oscillator, and relative volatility index. What does this set up say? On a weekly Heiken Ashi price chart, my reading is that the selling movement is exhausting itself and we may see a reversal soon (less than one month). Volume has increased in the past couple of weeks, and there seems to be buyers at around USD 33k that won't let the price drop further. Yet, there are contradictory trends to this reading, like the 21MM crossing the 55MM downwards, but the technical indicators do point to a reversion, too. Finally, the past three weeks were doji stars in the Heiken Ashi chart, which tend to signal bottom of trends. If prices break the USD 42k level, they will first test the 21MM and 55MM which are at around USD 47k, but the target is the USD 52k level. What could go wrong in this analysis?
Take away
Well, as the song goes, "the fundamental things apply as time goes by": the fundamental developments are still what drives the market beyond any "technical" indicators. The war in Ukraine, inflation and the FED monetary policy, plus cryptomarket regulations is what needs to be priced - and they will be, as soon as there is a definition. That's the point: no clear definition in these areas will add to volatility - surprise swings due to minor developments. In this fundamental scenario, there are several possible strategies: try to profit from trading volatility, dollar-costing averaging (DCA), hodling current portfolio, or simply wait-and-see if you are 100% liquid in cash (do not try to grab the knife while it's still falling!).