Analyzing Neo (NEO) using Murphy’s technical analysis laws: Bears have this market

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One of the most popular techniques for doing technical analysis is John Murphy’s technical analysis law. Let’s now apply it on Neo (NEO).  If it works, then it would be nice strategy for making money by applying it on any other crypto.

  1. Understand the long-term trend

John Murphy makes it clear that the first step to a successful technical analysis is to first understand the long-term trend.  In the case of NEO, this crypto is clearly in a long-term downtrend. It has been in a sustained bearish run for the last two months. This week too has started in the red, indicating that we are yet to see the bottom.

  1. Find long-term support and resistance levels

According to John Murphy, the best entry point for a buy order is at a long-term support level. Similarly, you should look to sell long-term resistance levels, unless such levels get broken. He defines support and resistance levels as price levels where price has found it difficult to break through. In the case of Neo (NEO), we should be looking for a long-term support level, since we are in a downtrend.   Applying this to NEO on the weekly chart, we find that the price has in the past lagged at around the $36- $38 price level. This is an indication that we are yet to hit the long-term support-levels, and that the bearish trend might continue for some time.

  1. Measure retracements

According to Murphy, before entering the market, you need to find out whether any retracements in the market are just pull-backs or a complete price reversal. He believes that a retracement should be between 32-68% on the Fibonacci levels. A move beyond that is indicative of a new trend. Using Fibonacci on NEO’s long-term chart, we find that NEO has broken the 68% Fibonacci level indicating a strong and sustained bear-run in the medium term.

  1. Make use of trend lines

To determine the sustainability of a trend, Murphy advocates for use of trend lines that touch at least three highs in a downtrend, and three lows in an uptrend. Let’s now draw a trend-line on NEO’s long-term chart just to confirm the trend.

In our chart, there are two pull backs, and the next one is likely to hit the line at around the $80 price level. Therefore, if you are looking to short, NEO, you should wait for this pullback for you to make a timely sell order.

  1. Use moving averages

Murphy argues that moving average crosses great entry signals. They are not predictive, but they offer confirmation for an entry that you were already anticipating.

In the Neo (NEO) chart above, where we have used the 20-day and 5-day moving averages on the weekly charts, we see a cross whereby the 5-day MA has already crossed the 20-day one. That’s a confirmation that the downtrend is intact, and a short-entry offers a good potential gain.

  1. Use oscillators

According to John Murphy, Oscillators provide you with an idea on whether the market is overbought or oversold. This can protect you from entering markets that are about to reverse.  The best oscillator is the relative strength index, where a reading of over 70 is a sign that the market is overbought, and one below 20 shows a market that is oversold. In our Neo (NEO) case, the RSI is at 45 on the weekly chart, and pointing downwards. This means that the downtrend is still strong, and there is still some room for more selling to take place.

  1. Confirm the trend

According to Murphy, the best way to confirm a trend is to use the average directional index (ADX). A declining one is a confirmation of a bear market, and vice versa. In our case, the ADX is pointing downwards sharply on the weekly charts. That’s an indication that the bear market is strong and a decision to sell is valid.

  1. Check the volumes

According to Murphy, volumes are important because they give an indication of how investors are taking positions. Enter the market during times of volumes surges. In our case, volumes are still low on the day charts, which means we should wait for money to start flowing in, before we make the sell order.


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