There’s always sunshine after the rain, they say. What they also say is, there’s always some sort of a bounce after a prolonged downtrend. A substantial bitcoin bounce was thus overdue. During the past two weeks a MACD bullish divergence formed on the daily chart and it was screaming for the downtrend to turn.
Bullish divergence, followed by a bitcoin bounce
Successive lower lows ($3,500, $3,200 and $3,100) were accompanied by higher lows on RSI and MACD indicators (they are explained in one of our blogs). However, the market can easily maintain a divergence longer than a trader can hold his nerves. Any entry before the breakout at $3,250 was very risky.
However, as $3,250 and the downtrend resistance were breached, the bullish divergence started playing out. The long awaited bitcoin bounce commenced.
Is this THE bitcoin bounce?
The price action of the past few days is pretty bullish. One can easily get overcome with excitement and forget that a major downtrend is still the name of the game. Selling pressure will be getting progressively stronger as we get higher. Many people will be aggressively taking profits from their bottom buys.
Only after a substantial pullback from this move is behind us – and we can see a former resistance turn into support – can one reliably count on an uptrend forming. This would be pretty healthy but may also not happen at all.
Where will this bitcoin bounce take us (4h chart)?
Trading this bitcoin bounce is about to get a lot more interesting. While my prediction that $3700 will prove to be a serious obstacle was fast proven wrong, pretty serious resistances are on the horizon.
On the 4-hour chart you can see that we just surpassed the upper boundary of the Ichimoku cloud. We are yet to close a candle above it, at least not on Bitstamp and Bitmex exchanges (the Bitfinex exchange chart is slightly more bullish). But if price stays close to where it is now for the next hour and a half (when the 4h candle ends), we can call the cloud officially breached. But even in that case there is the 200 MA hovering only slightly higher. I’d say that $3,950 is thus the area where this bounce will start getting seriously challenged.
This is especially true because this price level is also where the Visible Range indicator shows that the biggest volume of bitcoin changed hands on the way down. All this coincides with the downtrend channel, of which the upper boundary is also in that vicinity.
Finally, one should add that the Stochastic indicator hasn’t shown any divergences on this timeframe. There is still strength left in this rally.
I still think that some cooling off is due. I’d like to see an opportunity to enter somewhere around $3,600, which would be the former resistance turning into support.
Bigger time frames – should one go long or short?
To assess the macro picture, I often turn to 1-day and 3-day Heikin Ashi candles. And well, the pictures below speak for themselves. We just got the first green 3-day Heikin Ashi candle after 6 weeks of exclusively red days. The tides are turning, it seems.
However, if you check out the bigger picture on the daily RSI, you can see that we are slowly but surely approaching a pretty serious resistance.
Another interesting and important reference is the RSi on the weekly. Some days ago we dipped below 30 (a very rare occurrence for bitcoin) and with conditions being so oversold, a bitcoin bounce had to happen. However, as we get to 40 – which acted as support for almost the whole of 2018 – I imagine things may get very ugly very fast again.