Saturday, February 4, 2023

Dow Theory Update for February 4: Crytpo and the Dow Theory

 The primary trend for cryptos remains bearish


The Dow Theory also helps appraise the trend of cryptos. To derive confirmation, we need at least two related crypto assets. One good pair is Bitcoin (BTC) and Ethereum (ETHE). They are uncorrelated enough to provide useful signals (correlation=1 would be worthless) and similar enough (as with stocks). 


So, what is the current trend now?


It is a primary bear market. From the 6/17/22 lows to the 8/12/22 highs, a secondary (bullish) reaction against the bear market unfolded (brown oval in the charts below). Following such lows, ETHE made lowers lows (highlighted by the breakdown of the horizontal purple line and arrow) unconfirmed by BTC. While bullish, such a lack of confirmation is not enough to change the primary trend from bearish to bullish but may be indicative of a new rally. ETHE made its final lows on 11/20/22 and joined BTC in making higher lows and higher highs since that date. The pullback that started on 8/12/22 and finished on 11/20/22 for both cryptos set up both ETFs for a new primary bull market signal. Please mind that this latest rally is not a new secondary (bullish) reaction, as the one that occurred from June to August was not canceled as no confirmed lower lows occurred. 

So now we have two alternatives:


a) if the 8/12/22 highs are broken topside by BTC and ETHE, a new primary bull market will be signaled.


b) if instead, BTC broke down below its 6/17/22 lows and belatedly confirmed ETHE, the primary bear market would be reaffirmed, and the secondary reaction canceled. 


The chart below displays the current situation. The light blue horizontal line highlights the 8/12/22 highs for ETHE. The deep blue line highlights the same highs for BTC. The horizontal orange line shows the 6/17/22 lows for BTC (which were not penetrated), and the purple line ETHE’s 6/17/22 low that was subsequently broken down. The brown oval highlights the secondary reaction. 



So, despite all the recent bullishness about bitcoin, the charts say it is too early to call a new bull market. Furthermore, ETHE is very far from its 8/12/22 highs. 


Manuel Blay

Editor of

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