Bitcoin Tests Top of Local Structure, Breakout Possible — Price Analysis

  • Short term trend: Breakout/rejection scenario obtains
  • Long term trend: Remains down, but with potential for reversal

Bitcoin (BTC) is currently working through a breakout/rejection scenario, as it bounces off an identified resistance at the top of the local market structure. This is a fortuitous moment for Bitcoin, as it retains the possibility of reversal from the larger downtrend – especially if it breaks above the current structure.

Heading first to the daily chart, we see that Bitcoin first took and held the 21 EMA, and is now pushing against the 55 EMA, which is also almost exactly where the structure’s “neckline” is. This formation looks like a reverse classic head and shoulders, poised to break out. Volume for the day, with ten hours left, should easily outpace yesterday’s.

Reverse head and shouldersBTC chart by TradingView

If Bitcoin does break here, it would represent the beginning of a reversal from the downtrend that’s been in play since about July. Of course this is no guarantee, and should Bitcoin be rejected, it could plunge back into the thick knot of support going all the way down to $5,800.

To the 4-hour, we see that the sub-structure, a parallel channel, was broken-above and successfully retested, right on the 21 EMA. Volume is rising on the move up, although there was plenty of selling on the last bar as well.

At the topBTC chart by TradingView

The histogram here is flattening out, after cooling following the initial January 3 breakout. We could easily see this next bar in the green (or, bright blue here). This is the third time Bitcoin has tested this resistance line, and support/resistance lines often get weaker after repeated tests.

Finally, moving to the weekly chart, we see that the chart supports a new uptrend. Last week closed with a powerful bull wick, with buyers pushing the price all the back nearly to the opening price. The RSI is uptrending nicely on trend, and the histogram is just now starting to accelerate in a bullish contraction after a series of mostly flat contracting weeks.

Smoothly building momentumBTC chart by TradingView

The momentum definitely looks up on this chart, as it is hard to reverse the flow of a weekly histogram. What’s more, if Bitcoin does not reverse here, things could start getting pretty ugly: the weekly EMA fan will likely invert completely, with the 21 crossing under the 55. This would set a nasty bearish tone for 2020.

The potential exists here for a break above $7,600. The charts support it, and support in the $7,000 range has been stolid and proven.

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