The Market’s Compass Crypto Sweet Sixteen Study

Welcome to this week’s publication of the Market’s Compass Crypto Sweet Sixteen Study #116. The Study tracks the technical condition of sixteen of the larger market cap cryptocurrencies. Every week the Studies will highlight the technical changes of the 16 cryptocurrencies that I track as well as individual highlights on noteworthy moves in certain cryptocurrencies and Indexes.

In the spirit of Christmas, this week’s Blog will be sent to both free and paid subscribers. I will not be publishing a Market’s Compass Crypto Sweet Sixteen Study for the next two Sundays as I enjoy the Christmas Holiday and New Years celebration with family and friends. The next MC Crypto Sweet Sixteen Blog will be posted on Sunday January 7th. That said, if there are important technical changes, I will post a short interim report.

The standout performer of the week, on several technical fronts, was Avalanche (AVAX) on an absolute and relative basis and it ended the week sporting the best Technical Ranking of the Sweet Sixteen. At the index level the CCi30 Index has held key short-term support levels since last Saturday’s intraday high. Only a break of key support at the 10,030 level in the Index would suggest a correction of a larger degree was unfolding.

The Excel spreadsheet below indicates the weekly change in the objective Technical Ranking (“TR”) of each individual Cryptocurrency. The technical ranking system is a quantitative approach that utilizes multiple technical considerations that include but are not limited to trend, momentum, measurements of accumulation/distribution and relative strength. The TR of each individual Cryptocurrency can range from 0 to 50. The primary take-away from this spread sheet should be the trend of the individual TRs, either the continued improvement or deterioration, as well as a change in direction. Secondarily, a very low ranking can signal an oversold condition and very high number can be viewed as overbought. Thirdly, the weekly TRs are a valuable relative strength/weakness indicator vs. each other, in addition when the Sweet Sixteen Total Technical Ranking (“SSTTR”), that has a range of 0 to 800  is near the bottom of its range and an individual cryptocurrency has a TR that remains elevated it speaks to relative strength and if the SSTTR is near the top of its recent range and an individual cryptocurrency has a TR that remains mired at low levels it speaks to relative weakness. Lastly, I view the objective Technical Rankings as a starting point in my analysis and it is not the entire “end game”.

*Rankings are calculated up to the week ending Friday December 15th

The SSTTR fell -16.91% to 565 last week from 680.5 for the week ending December 8th wiping out most of the previous weeks +16.52% gain to 680.5 two weeks ago. At 680.5 the December 8th reading in the SSTTR was the highest level since I started tracking The Sweet Sixteen Total Technical Ranking in October 2021 and despite last week’s pullback the SSTTR remains in overbought territory as will be seen later in today’s Substack Blog. Also, as can be seen in the spreadsheet below, only three of the Sweet Sixteen registered gains in individual Technical Rankings (“TRs”) vs. the previous week when thirteen registered gains in their TRs.

As mentioned above, only three of the Sweet Sixteen Cryptocurrencies registered gains in their individual TRs and thirteen fell. The average TR loss gain was -7.22 versus the previous week’s average TR gain of +6.03. Leading the field with higher TRs last week was Avalanche (AVAX) which gained +14 “handles” to 46.5 from 32.5 followed by Cardano (ADA) which gained +3.5 to 43.5 from 40. Nine of the Sweet Sixteen ended the week in the “green zone” (TRs between 35 and 50) and seven were in the “blue zone” (TRs between 15.5 and 34.5). The previous week ending December 8th, there were fifteen crypto currency TRs in the “green zone” and there were one in the “blue zone”. AVX registered the highest TR of the Sweet Sixteen last week (46.5) and as will be seen later in the Blog AVX also recorded exceptional positive relative strength and the best absolute gains over the past two weeks.

*The CCi30 Index is a registered trademark and was created and is maintained by an independent team of mathematicians, quants and fund managers lead by Igor Rivin. It is is a rules-based index designed to objectively measure the overall growth, daily and long-term movement of the blockchain sector. It does so by indexing the 30 largest cryptocurrencies by market capitalization, excluding stable coins (more details can be found at CCi30.com).

The Relative Rotation Graph, commonly referred to as RRGs were developed in 2004-2005 by Julius de Kempenaer. These charts are a unique visualization tool for relative strength analysis. Chartists can use RRGs to analyze the relative strength trends of several securities against a common benchmark, (in this case the CCi30 Index) and against each other over any given time period (in the case below, daily since the end of the previous week). The power of RRG is its ability to plot relative performance on one graph and show true rotation. All RRGs charts use four quadrants to define the four phases of a relative trend. The Optuma RRG charts uses, From Leading (in green) to Weakening (in yellow) to Lagging (in pink) to Improving (in blue) and back to Leading (in green). True rotations can be seen as securities move from one quadrant to the other over time. This is only a brief explanation of how to interpret RRG charts. To learn more, see the post scripts and links at the end of this Blog.

Regular readers will notice that not all sixteen cryptocurrencies are plotted in this week’s RRG Chart. I have done this for clarity purposes. Those of technical interest remain.

Avalanche (AVAX) was the standout relative performer last week as it left the Weakening Quadrant and has risen sharply into the Leading Quadrant exhibiting extraordinary relative strength and relative strength momentum. Directly on its heels, has been Cardano (ADA) although late last week it had begun to roll over but nonetheless it remains elevated in the Leading Quadrant. Polkadot (DOT) has moved higher in the Leading Quadrant, but it also showed some slowing of relative strength momentum on Friday. That said, one day is not a trend changer. Cosmos (ATOM) is what I like to refer to as a “sweet spot” as it has left the Lagging Quadrant and has started to track into the Leading Quadrant. and Solana (SOL) has pushed into the Leading Quadrant directly from the Weakening Quadrant. Ethereum (ETH), Bitcoin (BTC) and Dogecoin (DOGE) have all left the leading Quadrant behind and are tracking lower.

*Friday December 8th to Friday December 15th

Of the five absolute gainers last week the star absolute performer was Avalanche (AVAX) up +30.58% adding to the other positive technical features. Chart below.

Last week’s absolute gains in AVAX added to the previous week’s 39.11% gain. MACD continues to track higher reflecting the positive price momentum and there is little hint in the Fisher Transform that there is an impending price reversal. The bottom panel exhibits the strong relative strength vs. the CCi30 Index since the start of November. I am not prepared to argue with these positive technical features despite the “stretched” almost parabolic price action.

There are eight Technical Condition Factors (“TCFs”) that determine individual TR scores (0-50). Each of these 8, ask objective technical questions (see the spreadsheet posted below). If a technical question is positive an additional point is added to the individual TR. Conversely if the technical question is negative, it receives a “0”. A few TCFs carry more weight than the others, such as the Weekly Trend Factor and the Weekly Momentum Factor in compiling each individual TR of each of the 16 Cryptocurrencies. Because of that, the excel sheet above calculates each factor’s weekly reading as a percent of the possible total. For example, there are 7 considerations (or questions) in the Daily Momentum Technical Condition Factor (“DMTCF”) of the 16 Cryptocurrencies ETFs (or 7 X 16) for a possible range of 0-112 if all 16 had fulfilled the DMTCF criteria the reading would be 112 or 100%. A DMTCF reading at 85% and above suggests a short-term overbought condition is developing and a reading of 15% and below suggests a short-term oversold condition.

At the end of last week, the DMTCF dropped to a reading of 27.68% or 31 out of 112 points from the previous week’s overbought reading of 91.96% or 103 out of 112 points.

As a confirmation tool, if all eight TCFs improve on a week over week basis, more of the 16 Cryptocurrencies are improving internally on a technical basis, confirming a broader market move higher (think of an advance/decline calculation). Conversely, if more of the TCFs fall on a week over week basis, more of the “Cryptos” are deteriorating on a technical basis confirming the broader market move lower. Last week seven TCFs fell and one TCF was unchanged.

The Sweet Sixteen Total Technical Ranking (“SSTTR”) Indicator is a total of all 16 Cryptocurrency rankings and can be looked at as a confirmation/divergence indicator as well as an overbought / oversold indicator. As a confirmation/divergence tool: If the broader market as measured by the CCi30 Index continues to rally without a commensurate move or higher move in the SSTTR the continued rally in the CCi30 Index becomes increasingly in jeopardy. Conversely, if the CCi30 Index continues to print lower lows and there is little change or a building improvement in the SSTTR a positive divergence is registered. This is, in a fashion, is like a traditional A/D Line. As an overbought/oversold indicator: The closer the SSTTR gets to the 800 level (all 16 Cryptocurrencies having a TR of 50) “things can’t get much better technically” and a growing number individual Crypto’s have become “stretched” there is more of a chance of a pullback in the CCi30. On the flip side the closer to an extreme low “things can’t get much worse technically” and a growing number of Crypto’s are “washed out technically” and an oversold rally or measurable low is closer to being in place. The 13-week exponential moving average in Red smooths the volatile SSTTR readings and analytically is a better indicator of trend.

*At the suggestion of a few of my regular readers, I have adjusted the chart below to better visualize the level of the SSTTR and the unfolding price action.

Last week the CCi30 Index traded in a wide nearly 1290-point range and closed the week off the lows. I view that weekly price action as a pause to refresh after the previous week’s 1,370 gain and not a price reversal. The Sweet Sixteen Total Technical Ranking (center panel) has pulled back from the previous week’s overbought reading, but MACD continues to track higher above its signal line. I am watching key dual support the Median Line (gold dotted line) of the Standard Pitchfork (gold P1 through P3) and the Upper Warning Line (red dashed line) of the Schiff Modified Pitchfork (red P1 through P3) a break of which would hint that the first measurable correction since the late October price lows may be unfolding.

Last Saturday the CCi30 Index rose to the best level (P3) since breaking out of the multi-month basing pattern. On Monday morning there was a sharp pull back in price across the crypto world that was what some say was a large deleveraging of long positions. More important than a guess at what caused the sell-off is the fact the Kijun Plot (green line) and the Median Line (purple dotted line) of the newly drawn Standard Pitchfork (purple P1 through P3) held as support. Two technical concerns are that MACD did not yet confirm the new price highs and the Fisher Transform is tracking lower under its signal line. The Sweet Sixteen Daily Momentum / Breadth Oscillator has pulled back from overbought territory. Only a break of support at the 10,030 level would suggest that a correction of a larger degree is unfolding.

Charts are courtesy of Optuma whose charting software enables anyone to visualize any data including my Objective Technical Rankings. Cryptocurrency price data is courtesy of Kraken.

The following links are an introduction and an in depth tutorial on RRG Charts…

https://www.optuma.com/videos/introduction-to-rrg/

https://www.optuma.com/videos/optuma-webinar-2-rrgs/

To receive a 30-day trial of Optuma charting software go to…

www.optuma.com/TMC.