When we last checked in, almost exactly three months ago, Monero was still stuck within a deep descending channel against Bitcoin. While still far confirming a trend break, we noted that the similarity in high time frame [HTF] price action with a fractal from 2016 could provide a hint towards a breakout.
Now in retrospect we can validate this hypothesis as XMR/BTC did consolidate sideways, finally invalidating the downtrend from the January 2023 high. However, we can see that since the trend break in May, XMR has not taken out the May highs, and in fact has been printing lower highs and lower lows in a descending channel going back to the March low.
What is happening in this channel far less mundane than it looks, if you would believe. I wanna start explaining by highlighting that since March 18, the price has either risen above 0.005802, or fallen below 0.005165 (apologies that the label was cut off the screenshot) 17 out of 133 [12.8%] days. We're going to consider this a horizontal range while continuing to make the case that it is an accumulation zone.
Aside from the descending channel and the horizontal range, there is another data point to call out here, which is that green ascending trendline visible along the lower right corners of the chart. It is a HTF trendline that dates back to 2015.
For now, given that the price broke below that trendline, then proceeded to break back above and begin to trend upwards, we are looking at it as a fakeout. Fakeouts are strong indicators of a trend reversal and price tends to move significantly in the opposite direction. It is specially interesting that this fakeout happened at the intersection of two trendlines possibly indicating a confluence of support.
Given the price action had a significant and immediate reaction upon interacting with that confluence of support, we are more inclined to believe that the market indeed considers this a significant level.
Successfully trading markets is not about finding one data point to go off, and even more importantly, one plan. For now the price action is still occurring inside of both the horizontal range, and the descending channel, we must prepare for potential downside. The only thing that confirms the break of a trend, is the price action itself.
It is of interest that the price action has been trading near the resistance line of the descending channel. Previous attempts were met with immediate rejections, which suggests that this trend is exerting less influence on the market. This makes playing the downside of the range risky given the proximity to recent support levels.
Now that we've identified some potential signals of upward price action, we want to try to identify a potential path for the market and potentially gain an edge if there is follow through. We generally want to use channels with four or more touch points, ideally multiple on both sides, as they provide reliable boundaries for a trading range, however we're not always given that luxury when a trend is young.
Shadows/wicks, particularly immediately preceding a reversal are good hints to draw significance from. For now we'll have to do with the two available to draw our ascending trend support line.
Calling back to our previous point about confluence, we can see that the most recent shadow off that trendline also occurred at the intersection with the horizontal range support line. Following this touch, the price then rose towards the ascending channel's halfway point.
Accumulation is the term for the horizontal price action following a downtrend and preceding a reversal into an uptrend. It is difficult to identify proactively, because until you get the break away from the consolidation range, it could just be consolidation on a large time frame.
A good way to help visualize the momentum of a market is by using moving averages. While these are by definition lagging indicators, the distance from the price action can help indicate momentum, as well as an established trend. Due to their lag, relying primarily on them will lead to losses at pivot points. They should be used as secondary indicators.
Nevertheless, I want to highlight the moving averages lined in a spectrum colored in combined shades of red and yellow. I'll refer to these as the EMA Ribbons (not an original term, though I'm not sure if this indicator is standardized and officially named) and it is calculated using the 20, 25, 30, 35, 40, 45, 50, and 55 exponential moving averages for a given time frame. You can refer to the lower numbers as the 'faster' EMAs, and the higher numbers the 'slower' ones, because each number represents the number of closing prices for the given time frame, and so more historical data is included and increasingly dilutes the influence of recent data points.
The ribbons are a phenomenal representation of momentum. When ribbons get tighter they generally identify areas of consolidation, and when they are wide apart, they are essentially highlighting a sharp and sudden change in prices.
We can see that they spread apart considerably wide during the January downtrend, and have since compressed significantly. Notably, near the current price action, the lighter yellow colors are overtaking the darker red. I'll let you finish this thought.
Do want to finish of by re-iterating that there is still a viable path for potential downside, and if I made a convincing case for calling this an accumulation zone, I would not bid blindly right now, as we don't yet have a confirmed break from the downtrend.
The recent price action is exciting given our position. But for now, we wait.