Tracking the Elusive Alt Season

August 24, 2018 / by Noah Hornaday

“Alts are dead,” proclaims the same overly exuberant mass of people who shouted “alts are going to the moon” just 8 months ago in late January (near the top). Although prices are starkly different, there is a similarity between the current altcoin investor climate and the climate during the peak of the bull market in January: most opinions on the future of altcoins are overly exaggerated and fueled by emotion. Luckily, there is a way to form a data-based conclusion on the potential direction of the altcoin market in the coming months, and that’s done by using charts. Let’s take a moment to break down exactly what some of the metrics showed us in the past before altcoins took off and how they look now.

Using an altcoin index comprised of multiple of the more liquid altcoins (ETH, LTC, XRP, XMR, IOTA, EOS), we can display a collective of altcoin price action on a single chart. One of the standout signals that showed altcoins were due for a bounce leading up to December was the massive RSI bullish divergence forming on the higher timeframe 3D chart. We saw price posting lower lows while buyers signaled rising strength on the relative strength index. At the moment, we see another bullish divergence forming on the 3D chart, albeit not one as pronounced as the last one. Nevertheless, the signal remains and will be confirmed with an RSI break above 26.0.

Divergences are the strongest when combined with horizontal support and resistance levels. At the moment, we see price has seen a positive reaction to the level of demand, or order block, that sent price skyward during the last alt season. This shows that historically buyers have been eager to buy altcoins at this level, which could be what we are starting to see occur based on the behavior of the RSI.

Using trend determining indicators such as the ichimoku cloud and the moving averages, we can look for confirmation of a bullish trend, of which we have none such yet. That said, we do see what is known as a T-K disequilibrium, which is when the tenkan (blue line) is positioned respectively at a distance further away from the kijun (red line) than normal. A mean reversion is likely to happen when this occurs, which would mean price would rise and cause the kijun and tenkan to be closer to one another. This T-K disequilibrium dynamic occurred briefly before the altcoin run-up in December-January as well.

The BTC dominance percentage over the rest of the market cap is another indication of the state of altcoins. The past two alt seasons have occurred after a break in the BTC dominance percentage uptrend occurred. At the moment, we see that the BTC dominance percentage is still trending upwards by way of making higher lows and higher highs. When the new money flows into the market, it is usually via Bitcoin, which is then distributed into altcoins for further gains. This means we need to see a healthy dominance percentage for Bitcoin before altcoins can see any positive regression. As BTC heads to 55%, we see a dominance that is near the same percentage we saw in December that led to the largest alt season yet (65%).

Putting all of this together, it is fair to say that the likelihood of altcoins reversing is increasing as the days pass. With many altcoins near their historical bottoms and accumulation zones, this comes as no surprise. Markets work in cyclical fashions, and this dynamic is what makes bull markets possible. With bullish divergences occurring at historical supports, the wise move would be placing your bets into your favorite altcoins, little by little, ignoring, if not counter trading the negative sentiment and realizing that it’s always darkest before dawn.