After almost a month of bitcoin’s slow decline, there is still very little light to be seen at the end of the tunnel. Or, to put it differently, there is still very little light to be seen at the end of the (descending) channel.
This fatal descending channel was initiated just around Christmas, when we crashed down from $4,250. Since approximately a month ago bitcoin also started to form a falling wedge pattern. This pattern is now tightening up and bitcoin’s price is getting increasingly squeezed between support and resistance. Such a pattern – the falling wedge – is often considered a bullish pattern. Such a scenario is currently supported by a bullish MACD divergence on multiple timeframes. However, the macro trend direction is still pointed decidedly downward and until we got a confirmation of a reversal – my take is on trend continuation.
Though crypto markets haven’t seen much volatility lately, bitcoin’s slow decline will stop being slow fairly soon. A significant move is almost certainly on the table as soon as we break out of the wedge in either direction. This being said, several small attempts of a breakout already occurred on both long and short sides. However, they failed to have a significant follow-up and the descending resistance and support lines of the wedge thus seems hard to pinpoint.
Once again I’m turning to RSI levels, which seem to give a clearer picture. The RSI levels on the daily also formed a falling wedge pattern. The last lower low of the wedge managed to touch the levels around 36, as I predicted mid-January. This served as support throughout much of 2018. From there it managed to bounce back towards the resistance area. RSI breaking below the 36 level should mean a retest of the December 2018 bottom.
As for the possible upward move, RSI offers plenty of upward space before any significant resistance. In that regard, I feel that we could get to approximately $3,700 area fairly easily. I also think this area will prove to be difficult to break through. There is a confluence between the 50 day MA and the Ichimoku cloud base line. Both will serve as strong resistance.
The upper part of the descending channel, when bitcoin oscillated between $3,500 and $3,700, allowed for numerous altcoin pumps. However, as BTC left the range alts started to decline rapidly. I’m still glad I exited my position in time, just before the breakdown commenced. After that, with the exception of a few jumpy two-digit-satoshi coins like NPXS, HOT and BTT, low volatility prevailed.
However, a bullish divergence on the daily stochastic indicator has been building for quite some time. Altcoin entries thus looked pretty interesting – but got invalidated by the recent move downward. Currently, daily RSI levels of the altcoin market-cap are sitting rather precariously on the ascending support.
Bitcoin’s slow decline – will it reverse or accelerate?
In light of the aforementioned RSI levels – bitcoin as well as the altcoin marketcap are at critical support. If BTC pushes back up again, I suspect some very lively altcoin movements are in order. However – if bitcoin makes any further downward moves (which I expect it will), a pretty hard sell-off of altcoins can be expected. Many of them already broke below their local support.
All in all, this is a pretty tough and choppy market. Reasonably safe longs can only be opened at the retest of the breakout of the wedge. Alternately, one can wait for a couple of days (or weeks) till we get a more reliable set of signals for a safe long trade (shorting down here feels somewhat risky). One possible approach is buying the dip at the $2,800 area, where the lower part of the descending channel meet a few other signals.
Waiting out until the air clears seems to be the best idea to me. My advice on how to handle this market at the moment is the following: do some reading, either about crypto fundamentals or about technical analysis. While you can learn about the latter in our course, here are two very good articles on history and the changing narratives of the two most important cryptocurrencies out there:
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