Crypto-Chart School — NEO and Fibonacci

I can tell you that I was a happy camper waking up this morning.  Amidst all of the drama surrounding the “will they/won’t they” of Segwit 2x a lot of good price action has occurred in the crypto-space.

Platform Token NEO broke out of a very strong base last night.  I saw the initial impulse before going to bed which was noisy and running into massive resistance.  Knowing that the base NEO broke out of had been building for weeks, I wasn’t that worried about a pump and dump.  

And even if a pump and dump had occurred I would not have been worried.  Tokens like NEO are long-term speculative bets, ones that have to be monitored like you would a junior resource gold or copper stock.

And if the development team is meeting its goals and pushing the project forward based on its Gantt charts then sticking with the volatility is simply part of the process.

That doesn’t mean that profit-taking opportunities don’t present themselves along the way.  In the case of NEO and it breaking out of a four-week base, the probability of the rally being approximately 8 hours long was low.

This chart has a ton of good information in it. Let me take you through it step-by-step.

Note the early part of the chart (left side).  NEO was bouncing around for days between $25 and $32 on almost no volume.  Then the barest minimum of buy-side volume (green volume bars) stepped in and the price began to move up, ending in a climax move just shy of $49.

There was an immediate and sharp sell-off, some of which I watched last night before bed, and a snap-back rally to near the high, but not through it.  In less than two hours we got a climax high AND low and a re-test of the high.

That is all you need to build a Fibonacci retracement series of prices.  These crypto-markets are dominated by semi-professional and retail-level traders.  In markets like these, tools like Fibonacci work really well.

Each level of the Fibonacci series corresponds to a percentage of the total move, from high to low or vice-versa.  (You can read up on the math here., it’s pretty simple)  The levels are 23.6%, 38.2%, 50%, 61.8% and 76.4%.  And traders tend to set their buy and sell limits around these prices.

But, like all technical analysis of this type which is derivative of price moves, not the actual prices moves themselves, there is a self-fulfilling prophecy aspect to it that you have to be aware of and salt your analysis liberally.

The Fibonacci tool also defines the trendline by drawing a line from the peak to the next important high or vice versa.  The downtrend line gives you some idea of the time it can take for the market to continue its rally or crush it by constantly brushing up to it and the supply of sellers overwhelming buyers to push the price back towards the low.

This is one form of technical resistance.

Note that is exactly what didn’t happen here.  The downtrend line didn’t act like resistance at all.  NEO blew through it like it wasn’t there.  NEO did attempt four time to breach the 61.8% Fibonacci line and when it corresponded to the downtrend line the market blew through it.

However, once that trendline is breached to the upside, what was supposed to be resistance to a rising price becomes supportive on pull-backs later on.  So, in this case NEO rallied back to $49 (the initial climax high) and volatility ensued.

There was a titanic struggle for the next couple of hours at that level but each time the downtrend line held support.  Note also that as time went along volume kept falling.  Eventually there was 30 minute period of almost zero volume.  That’s usually a very good sign the sellers have all left the building and are exhausted.

And then the next rally can begin.  New high, new low, new Fibonacci series.