Capitalizing on the Bear Market

The recent sharp sell-off across all types of assets, from government bonds to cryptocurrencies, has caught the attention of every trader with an active interest in finance.

While the downturn has sparked fears of a recession, this correction appears normal, presenting significant opportunities similar to those during the 2020 pandemic.

Stock market overview

On August 4th, former President Donald Trump warned on X (formerly Twitter) about a potential recession, further dampening market sentiment. Additionally, Warren Buffett’s announcement of selling most of his stocks, worth $277 billion, on the first day of August contributed to the negative outlook.

Rising inflation and unemployment rates are causing investors to worry about a recession, leading them to avoid risk-on assets. Since the start of the month, the S&P 500 has fallen more than 8%, and the NASDAQ has declined around 12%.

This rapid decline is one of the fastest in stock market history, suggesting that the trend could continue with greater magnitude than the Covid Crash. If stocks continue to fall, the Federal Reserve might be forced to implement an emergency rate cut to stabilize the economy.

Bitcoin analysis

BTCUSD - 1 Week Time Frame

The crypto market has also experienced significant losses. Bitcoin has plummeted from $70,000 to $49,000 in two weeks. On August 5th, the cryptocurrency market saw over $1 billion in liquidations, pushing prices to a key level—the December high.

After reaching this level, Bitcoin saw its first solid bounce in days, moving up to the previous Order Block on the weekly chart. However, Bitcoin struggled to maintain this level for more than a few hours and is now heading lower to retest the liquidity level.

Bitcoin might close below the 50MA on the weekly chart, which, in the previous bull market, led to recovery. Although current conditions are different, historical patterns sometimes repeat, even in times of war.

It is important to compare this two-week decline to previous ones. It is much more robust than past corrections, even those during the previous bull market.

This indicates that Bitcoin is heavily oversold, with most leverage wiped out. While more downside is possible, a bounce before continuation is likely but not advisable for trading.

If Bitcoin cannot hold at $49,000, the next significant support is the POC (Point of Control) from the entire bull market, marked by the Fixed Range Volume Profile at $42,960.

Otherwise, the last support is the January low at $38,000. If the price hits the January low, it is safe to say that a bear market is confirmed.

Solana analysis

SOLUSD - 4 Hour Time Frame

Among cryptocurrencies, several have shown resilience, initiating bullish moves following the plunge. Solana, in particular, is noteworthy.

This altcoin has been forming a high volume of sell-side liquidity since late April, making a fall below this level expected. Commercial market participants found sufficient volume to counter their buy positions from small and large speculators.

Understanding the market context is crucial for traders. The price closed above the resistance (indicated by the yellow rectangle), suggesting that this zone will now act as support and confirm a buying setup from the market algorithm's perspective.

SOLUSD - 1 Day Time Frame

The Stop Loss (SL) order should be placed just below the low that preceded the formation of the support. There are two Take Profit (TP) levels: the internal and external buy-side liquidity levels.

Managing trades requires attention to price behavior at resistance (indicated by the blue rectangle) on the weekly time frame. If the reaction to a buy order is negative, some volume should be sold off due to the increased risk of a continued bearish move.

This probability may also increase if there is a close below the initial support zone on the four-hour time frame. In such a case, the trader should sell off part of their volume to mitigate risk.

Time to buy low?

Given the unstable global economy and growing market uncertainties, it is crucial to be cautious.

Traders should strategically navigate the current market sell-off and its repercussions by understanding market contexts, managing risk, and remaining cautious amid economic uncertainties.

The current market conditions offer hot opportunities, but they require a careful and informed approach to trading and investing.