Bitcoin (BTC) yesterday broke to the downside, after being squeezed tight as a coil into a local consolidation pattern. The breakout was predictable, even if the direction wasn’t, and the market seems to have chosen “down” - but it is too soon to tell if this choice will stick, or if it’s all an elaborate fakeout.
We start with the 6-hour chart, where repeated rejections at the 200 exponential moving average (EMA) presaged the dump. Price has so far been caught in a historical support zone starting precisely at $9,500.
The most obvious look of the price action since the dump, at least so far, is of a bear flag. This would suggest another leg to the downside - about the same amount as the previous “flagpole’s” length - but that would take Bitcoin clean through the support zone.
If we get very granular on the 1-hour chart, we see that Bitcoin is actually looking ready for a counter-rally back up. Higher highs and lows suggest a leg up, and Bitcoin has taken out the 21 EMA after being rejected by it several times. The MACD is pointing up hard after rebounding from the selloff, and the histogram is staying consistently in positive territory.
Volume, however, is not really coming in strong for this rebounding move up (Huobi exchange). This could change at any moment, though.
We now address the question of the short term trend. If a rebounding bounce does not materialize soon, we are likely to see some healthy downside action and the start of a short term downtrend. We won’t discuss retrace targets here, but rather wait for that to be confirmed.
If a bounce does come soon, it could still result in a new short term downtrend and retrace. Price would probably have to completely retake the lost support level, with high strength, in order to invalidate a downtrend thesis.
We see above that the Fibonacci retrace tool can help us gauge that strength, if a bounce even does come. Even if a reversal can get past the 0.618-65 region, it would be nowhere near retaking the lost uptrend support band seen here. A more placid rebound over the course of a day or more (illustrated) would definitely resemble a bear flag and make us worried about another leg down.
In sum, the first shot has been fired in a new, short term Bitcoin downtrend. The present support zone holding Bitcoin up has been tested several times already (see yesterday’s analysis), and could give way soon. We are waiting to see what the market wants to do. If we do go down, the long term Bitcoin uptrend must start being reviewed and reconsidered.
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