Bitcoin Dow Theory bull signal analyzed by Alessio Rastani and guest Manuel Blay
Alessio Rastani interviews trader and analyst Manuel Blay on a newly triggered Dow Theory bullish signal on Bitcoin and Ethereum.
Summary
Alessio Rastani hosts Manuel Blay, described as a leading authority on Dow Theory, to discuss a newly triggered bullish signal on Bitcoin and Ethereum. Manuel had previously and correctly called a Dow Theory bearish signal on Bitcoin when it was above 100K, which preceded a drop to around 60K. He now argues that this bearish signal has been reversed: Bitcoin and Ethereum have both made higher highs, shifting the balance of probabilities in favor of the bulls. Alessio broadly agrees but flags specific risks — particularly the overlapping, corrective structure of Bitcoin's first rally from the lows, and the significance of the weekly 21 EMA as a key resistance level that, if it rejects price, could signal a return to bearish conditions. Both analysts agree that while a new bull market appears to be underway, it is unlikely to be a straight run to new all-time highs given the extent of prior technical damage.
Key Takeaways
FULL TRANSCRIPT
Introduction and Guest Overview
Alessio Rastani: Hello and welcome. We're honored to have our special guest, analyst and trader Manuel Blay, who many of you will recognize from our previous videos. He's going to talk with us — and I'll have a discussion with him — about the chart of Bitcoin. Manuel Blay believes that an important signal has just triggered on the chart of Bitcoin and also Ethereum. So we'll ask Manuel what the potential meaning of this signal is. Is it bullish for Bitcoin? And if so, how bullish? Does the signal mean that we've entered a new bull market? Has the bear market finished? We'll talk about all of this with Manuel Blay.
Welcome back. We're going to go through a lot of charts with Manuel Blay here. We're going to dig into these charts and discuss Bitcoin, and Manuel is going to discuss an important signal which has triggered on Bitcoin. I highly recommend, if you haven't already checked it out, that you read his newsletter. I read Manuel's newsletter religiously. He is by far one of the world's authorities and leading experts on the Dow Theory model. He's also a phenomenal analyst and trader, which is why we have him today.
Actually, before we go on to your charts, I have to admit that I was expecting Bitcoin to drop down below 60K some weeks ago. It just seemed more probable to me for Bitcoin to drop down to the 200-week average, which was just under 60K — near 59 or 58K approximately. I thought that was more reasonable. It turned out Bitcoin hasn't done that. It's broken the trend line resistance. But more importantly, what is the meaning of this Dow Theory signal — this Dow Theory bullish signal? Does it mean that the bear market on Bitcoin has ended and we're now moving into a bull market?
Manuel Blay: Well, it's clearly a new bull market. We don't know whether it's going to be a huge bull market, but as traders, we don't care. Even if it doesn't reach new all-time highs — which I don't know at this moment — I don't care, because it can be a very tradable rally, and it is supported by a new bull market signal. This time, Ethereum confirmed Bitcoin's higher highs. And this breakout — this confirmed breakout, confirmed by Ethereum — means that the probabilities have shifted in favor of the bulls. For me this is clear, and we will go deeper, but things have changed.
Manuel's Prior Bearish Call and the Signal Reversal
Alessio Rastani: Before we continue, it's worth mentioning that Manuel Blay correctly called a Dow Theory bear signal — he correctly called a bear market on Bitcoin. I mentioned this also in my own videos. This drop to 100K was something we anticipated was going to happen, and the reason is that Manuel Blay of thedowtheory.com mentioned in his newsletter that Bitcoin had triggered a Dow Theory bearish signal. I think this occurred in October — am I right, Manuel? — where Bitcoin triggered a Dow Theory bearish signal when Bitcoin was above 100K, and then soon afterwards Bitcoin dropped to 70K and eventually down to 60K. Well done to you, Manuel, on an excellent call last year. And now you're saying that that bearish signal has now been reversed?
Manuel Blay: Reversed — erased.
Alessio Rastani: Reversed. So now we have a Dow Theory bullish signal — the opposite.
Manuel Blay: A bullish signal. Yes.
Alessio Rastani: And an interesting point you just made: this Dow Theory bullish signal does not necessarily mean it has to go to new all-time highs — although it could?
Manuel Blay: It could, but not necessarily.
Alessio Rastani: It's not necessary, but it does make it more probable. I guess another way to put it would be: we have a more favorable environment for Bitcoin and Ethereum when the Dow Theory bullish signal occurs.
The Bitcoin-to-Gold Ratio Chart
Manuel Blay: So this is the background. We had a bull market signal according to Dow Theory, which means that both Bitcoin and Ethereum make higher highs. But I'll give you some background. This chart shows the ratio between IBIT — the Bitcoin ETF — divided by GLD, which is the gold ETF. The red line shows this ratio. The blue line shows the 200-day moving average of the ratio. You can see this is bearish action because the blue line is trending lower. But if you look at the red line — which is not the average, but the ratio between Bitcoin and gold — the ratio is improving. It is not improving as much as I would like, because it's still below the 200-day moving average, but at least it is modestly going up. So this is a moderately positive background to our bull market signal.
The Bitcoin-to-Strategy (MSTR) Ratio Chart
Alessio Rastani: This next one is Bitcoin versus Strategy, or MSTR — Michael Saylor's company. Go ahead.
Manuel Blay: So here, once again, the rationale is that when there is risk-off for Bitcoin, MicroStrategy is going to drop more than Bitcoin, so it becomes weaker. And we can see here also that the 200-day moving average of the ratio is trending lower —
Alessio Rastani: — which shows that it was a bear market for both Bitcoin and MicroStrategy, and Strategy was performing even worse than Bitcoin. But now look — the ratio is improving again. You can see the green arrow: little by little it is making higher highs. Furthermore, a resistance level in the ratio — the horizontal green line — has been broken upward.
Manuel Blay: Yes. You see the horizontal line — this is a resistance line of the ratio. And you look: the gap between the 200-day moving average and the ratio is getting filled. I would like to see the 200-day moving average turn upward, but this is also a ratio chart that is improving. So this is another piece of good news for Bitcoin. Little by little it is transitioning into risk-on. This is why I'm still very moderate with my assumptions and say: well, it's a bull market, but I don't think it's the mother of all bull markets. But nonetheless, something is changing. Something has changed, and at least it's not a bad market.
Alessio's Technical View and Key Risk Levels
Alessio Rastani: That's really interesting, Manuel — fascinating. I'll just give my view very briefly and keep it simple. First of all, let me say Manuel and I have covered this in much more detail in the member video, with specific targets and Elliott Waves.
All I'm going to say here is this. Bitcoin's first rally — the rally that started from the lows of 60K, from what I think were the January lows — that first rally looked very corrective, very overlapping in structure, which is not typical. Those overlapping rallies are not typically what you see at the start of an uptrend or a bull market, but they can happen in leading diagonal patterns. So that's what concerns me at the moment — the fact that the first rally that occurred was overlapping and corrective in structure.
The second thing is that Bitcoin has rallied back to the 21-week EMA. So the weekly 21 EMA has now been tested. That level is a key resistance. In the past, we've seen Bitcoin rally back in a bear market — usually Bitcoin rallies back to the 21-week moving average — and if price gets rejected from that 21-week EMA, it reconfirms a bear market. Now, I'm not saying that's what's going to happen this time around. I'm not saying that. As a matter of fact, I'm going with Manuel Blay. I think he's absolutely correct. The Dow Theory bullish signal is something we need to take into account. The break of the trend line resistance and the channel resistance is also something important. So I'm with Manuel here — I'm bullish on Bitcoin for now.
All I'm simply saying is: we do need to be mindful of the risk that if Bitcoin gets rejected from the weekly 21 EMA and then falls back below support — if support levels get taken out — that is a very dangerous sign for Bitcoin. If support is broken or breached on Bitcoin in the next several weeks, I will have to change my mind and become bearish. But for now, I'm not bearish. I'm bullish with Manuel. I think he is correct. I think that even if Bitcoin doesn't go to new all-time highs, the Dow Theory bullish signal that has just been triggered on Bitcoin and Ethereum has increased the probability that we're in a favorable environment for Bitcoin and crypto in general. It looks like the trend and the path of least resistance is to the upside for now, and we could see higher levels. Am I saying it correctly in your view — that we have a favorable environment for Bitcoin?
Manuel Blay: I fully agree with you. This is a favorable environment, but there was lots of technical damage because it has been a 50% drawdown. So I think there is a lot of supply — an overhang of supply — and I think there will be some back-and-filling. I don't think it's going to go up to new all-time highs in a straight upward line. I think it will take time.
Alessio Rastani: And also psychological damage.
Manuel Blay: Yes — and once there is some back-and-filling and the psychological damage is repaired, then we have fuel for higher highs. But nonetheless, I am agnostic. If the bear market lows are pierced by Ethereum and Bitcoin, then I shift gears immediately and then I'm the most bearish man in the world. I follow the market.
On Flexibility and Bear Market Cycle Timing
Alessio Rastani: It is possible there'll be some people commenting and saying that we're both wrong because Bitcoin is still in a bear market. Let me just say this: they'll probably say that bearish cycles and bear market cycles don't finish so quickly, because often bear market cycles last longer. There are some analysts out there — and I actually interviewed Benjamin Cowan some weeks ago — and he mentioned that typically these bear cycles can take all the way to October.
Let me respond to that kind of comment or criticism. First of all, if you go and watch my video with Benjamin Cowan — who, by the way, I respect; I think he's a really smart guy — Ben actually mentioned that we must not be too rigid in our expectations. He said it's unreasonable for someone to become a permabear — in other words, always bearish.
Manuel Blay: Again, I've said this before: it's okay to be a bear in a bear market, it's okay to be a bull in a bull market, but it's not okay to be a bear when the market is proving you wrong. So it's okay for people to pivot.
Alessio Rastani: So Benjamin Cowan was actually quite flexible and very reasonable in his approach, and I agree with him. He said that the bear market cycle doesn't have to last all the way to October — it could be shorter. It depends on what happens in the next several months. So don't be too rigid about these bear market cycles. They don't work like clockwork. You just don't set them to a timer and say it has to finish in October or November or something like that. No — sometimes it's shorter, sometimes it's longer. You need to be more flexible with your expectations.
So I'm taking the Dow Theory bullish signal that Manuel Blay is presenting here very seriously. Don't get me wrong — we're not saying it's set in stone and cannot be wrong. False signals can happen. But we're not saying with 100% certainty that Bitcoin is going into a bull market. There is no such thing as guarantees or 100% certainty in analysis or the markets. But typically, when you get a Dow Theory bullish signal with other factors involved, the balance of probabilities moves towards the bullish side. Just as when we got a Dow Theory bearish signal in October last year, the balance of probabilities shifted towards the bears.
My point of view is that we should take Manuel Blay and the Dow Theory model seriously. Even if you don't think that it's in a bull market yet — that's fine. But I do think we should take this into account in our analysis. I'm in agreement with Manuel here. I think it's a very good point he's making.