Long term channel

Since the parabolic rise to the price high at $266 and the steep drop in price since, its been quite a challenge deciding if price is finished correcting and ready to start rising or if the correction still has a way to go and price could fall significantly more.

As some of the followers of this blog may remember I often like to look what I call the ‘long term channel’ which dates back to before the bubble in 2011, so heres an up to date picture of that channel, as usual plotted on a log scale.

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As you can see the floor of this channel has provided a lot of support for the past couple of years and is very well tested. The top of this channel first provided resistance in Jan12 but look now, the price is still above this channel and clearly finding strong support at that area. In my view this line is key to whether the price stays above $100 and starts another bullish phase or if we fall under it then we are back in the long term channel and would most likely visit the bottom of it, which today is somewhere around $30.

As an aside, another interesting feature of this chart is how you can easily see the magnitude of the 2011 bubble was a lot bigger than the recent bubble in terms of how steeply it rose and how many multiples the price increased.

I’ve attempted to draw the same channel on this 1 year log chart for a closer view.

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On this view you can see quite well the strong support the top of the channel has provided except for a couple of overshoots during the flash crash and when the price fell from the peak. By co-incidence the support also co-insides with the round number of $100 which should hopefully help provide further support to that area.

It is interesting to me to note how much buying appeared when we touched down to that level in the last couple of days, shown here in the latest 10 day chart, shown below.

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