Our First Top Heavy Signal Flashes Red
We've been tracking this concept of 'Top Heaviness' throughout this consolidation, and today we have our first complete signal flashing it is in play.
G’day folks,
The concepts of ‘Top Heaviness’ is one that you have likely heard me talking about for a while, and it is a framework for identifying when the market has a heightened risk of moving into a longer-term downtrend. It is how I conceptualise the start of a bearish trend, and seeks to find market conditions where:
Too many people, bought too many coins, at too high of a price.
Now as with all market analysis, it comes with nuance, and it is always easier to determine when a ‘bear market’ starts in hindsight. It is much harder to make such an assessment on the hard right edge, which is of course what makes markets such a fun puzzle to work on.
I originally developed this idea of ‘Top Heaviness’ as a lesson learned after my less experienced self missed the May 2021 sell-off. When lots of people suddenly find their investment heavily underwater, it can shatter confidence. Here we can see the very different characteristics of the May 2021 sell-off, which broke investor confidence during that bull, and was the genesis point of the bear market that followed.
In this video post, I want to cover a few topics as a lay of the land assessment for where I think we currently are. The market is retesting that $60k area of support, and we do remain below the Short-Term Holder cost basis. Importantly, we also have our first full Top Heaviness signal as over 86% of STH coins are now underwater.
In this video analysis, I explore my views on the following topics:
How derivatives markets are positioned and any excessive long leverage.
What the probabilities look like related to key mean reversion price models.
An assessment of the ‘Top Heaviness’ signal, and whether it is indeed bearish.
I have also provided a chart list below the video for those keen to see the live versions.