Before last night, Bitcoin (BTC) had looked to be consolidating for an eventual breakout, probably to the upside. But a failure to hold the lows of that pattern, and a host of other bearish observations, has forced us to consider the prospect of a deeper retracement.
Let’s start with the weekly candle close. In brief, it looks bad. A plainly bearish engulfing candle has been painted on respectable volume.
This in itself suggests that some downside is in the cards. Just based on this crude chart, too, we can also see where support will assuredly show up.
Moving to the daily chart, we can see what we had been following as a consolidation pattern (orange rectangle) has now more than likely been invalidated. The daily candle has closed well below the 33 exponential moving average (EMA), as well as previous daily support at $10,600.
We had marked the 33 EMA out as a special moving average, which has held the entire 2019 Bitcoin uptrend. Having closed on the daily below it, we can more than likely consider that uptrend finished in the short term. Bitcoin may now have its first serious retracement of the year.
Getting more granular on the 4-hour chart, we see that some decent buying came in at $10k to give Bitcoin an imposing hammer candle. But buy volume did not follow up on the subsequent candle.
The RSI is showing no positive divergences at this timeframe, although the histogram troughs are diverging positively against price. It is definitely a long shot to imagine that BTC can hold above $10k, at this point - but stranger things have happened. The 200 EMA, roughly equivalent to the 33 daily EMA, needs to be retaken in order to stay at these levels.
If we go all the way down to the 2-hour chart, however, some positive signs have begun to show up. A faint RSI divergence is visible above $10k.
Bulls need to step in and exploit this sign of strength, in order to avoid a much steeper retracement. We covered yesterday in a medium term price piece what some targets for that retracement might be: generally, an area between $9,000 and $7,500 is targeted for heavy support to come in (we can see that block outlined on the first, weekly chart above).
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