Phase two of Bitcoin’s (BTC) capitulation has begun, as the leading crypto’s price claimed another leg to the downside last night (September 26). It would seem that a general downtrend is forming on the short to medium term, and the main question in the immediate future will be: where is the bottom?
We start on the hourly chart to get the gist of what happened. As we anticipated yesterday, Bitcoin broke down from a mini consolidation off of a bear flag, to the downside. Bitcoin is laying a new market structure below $10,000, and everything that happens at this early juncture will be critical to the formation of that structure.
BTC seems to be forming a smaller consolidation now, with generally lower volume. This is a typical progression, as selling pressure gradually dissipates.
Looking at the indicators on the 2-hour chart, we see a series of bull divergences in price, and a trendline that hasn’t broken down yet. If the trend does break, we could definitely see another drop in price.
The histogram performance is a bit erratic on this timeframe at time of writing, with some flat spots breaking a smooth arc. Price has been unable to close above the 13 exponential moving average (EMA) on this timeframe, and so we can look to this average for an early warning for any moves up.
Moving back to the daily chart, we see that the 200 simple moving average (SMA) has been, worryingly for bulls, lost. Not regaining this average soon will cause serious problems for Bitcoin, and will throw the prospect of a continued uptrend into serious question.
But the mid-$8,000 to mid-$7,000 support zone has not been lost. It took BTC a month to chew through this resistance zone on the way to $14k, and it will likely not be easy to break on the way back down. If bulls are to successfully defend Bitcoin, this is the best place to do it.
Looking at the daily indicators, we see that the RSI is now severely oversold, and that the histogram is rolling back to the upside. While a downtrend of some length is now likely, a relief rally of some magnitude should be expected soon. These indicators can’t remain this oversold without some reaction forever.
The 2019 uptrend is being challenged at this very moment. The longer prices stay down here, the more the indicators turn down, and the more the market gets used to this level of confidence. The current support level is the best place to battle that out, and if it is lost then a long term downtrend is almost certain. In the immediate future, we can expect a counter-rally to regain some ground -- after that, we’ll reassess.
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