Four weeks have passed since the $6K area stopped acting as bitcoin’s support. With the bears relentlessly battering this region for almost 10 months, it basically just had to happen.
However, the break initiated a series of pretty violent sell-offs. As things currently stand, this is not yet over and further downside seems quite likely. Until proven otherwise, bitcoin is still forming what seems to be a bear flag.
Bitcoin’s support areas
With the months-long descending triangle broken, the market is suddenly much less predictable. As the price of bitcoin easily ravaged multiple areas of possible support, any long-term predictions are hard to make.
My personal bet on bitcoin’s support was around $4,300. For a day or two this looked as a credible thesis. However, the possible double bottom was, in fact, a plain bear flag. The dump continued and the free fall only stopped at the long-term diagonal support mentioned in the previous post.
To be honest I ain’t sure if it was the buyers that stepped in – or was it the supply side that got exhausted. One way or another, the bulls managed to deliver an almost 1000$ retrace back to 4400$. In terms of percentage, this was quite a considerable move. Nevertheless, after such a brutal dump one would assume a stronger retrace. This in itself is pretty concerning and is one of the reasons why I strongly suspect that the real bitcoin’s support area is still somewhere lower.
Daily Heikin Ashi time frame
After hitting the $3500 bottom the Heikin Ashi candlesticks remained red for the next two days. However, as we saw successive higher lows, the first green Heikin Ashi candle brought some long overdue signs of market optimism. Unfortunately, this didn’t last and the bulls got exhausted soon after.
Two daily candles in a row formed doji stars, which are often a sign of reversal. If that is the case, the run from $3,500 to $4,400 may have been the best this dead-cat bounce could provide.
4 hour time frame
On the 4 hour time frame one can see that $3,500 was nevertheless some sort of a bitcoin’s bottom. A fairly solid upward trend started to form but the series of higher lows was short-lived. The price dumped and we ended with what looks like a symmetrical triangle. We’re currently just in mid-range of this structure.
After a somewhat unexpected bounce from the new-found support (all the higher time frame indicators were pointing down, from MACD to Stoch), the bears stepped in pretty fast. The price couldn’t stay above the high volume node (the highest peak seen from the visible range indicators), an area that is in confluence with the 50 day MA. It seems that the price will thus revisit the diagonal support. Generally, this is not a good sign for the bulls. However, this does make for a nice setup for a long position to be opened just above diagonal support.
One way or another, even in case of bitcoin successfully breaching $4000, the price will then retest the descending resistance line. I’ll reopen a short position there.
All in all, the whole thing looks like a fairly typical bear flag. Longing here is a risky trade, as the high time-frame trend is still pointing downwards – and, as they say, the trend is your friend.
The safest opportunity for a proper long would be that we break out of the range, breach $4400 and make a higher high. In that case I’ll open a serious long on a pullback into the green area on the picture above
NVT indicator and the bitcoin bottom
A solid bitcoin’s support area will sooner or later come into sight. Until price action gives us some reliable data, one can turn for support to other tools. I already mentioned the NVT indicator, an experimental tool to determine the ‘correct’ value of an abstract asset such as bitcoin. This indicator proved to be very reliable during the past mayor cycles.
At the time of the last update two weeks ago, the value of this indicator was around 163. Now it’s already below 130. In theory, a proper NVT is between 30 to 90. According to this, bitcoin still seems to be overvalued. If that is true any support that we see in the current range will be but a temporary stop before the lower price regions.
“May you live in interesting times”
All this being said, it’s a good time to trade bitcoin and crypto in general. Big moves are taking place every day, with 4h candles easily encompassing moves from 5 to 10%.
Consequently, a breakout on each side of the 3600-4400 range will mean an even bigger move. If $4,600 falls we may likely see $5,300. If we head into the low $3,000’s, a fast capitulation wick into the $2,000s is also on the table.
Even in case BTC gets caught in this region for another week or longer, serious money can be made by trading range-to-range. Avoid taking BTC trades mid-range and never forget to set stop-loss orders in case of any wild moves. Remember, we’re not in the eternal $6,500 range anymore, where a 3% move was considered wild. Additionally, such a scenario means that altcoins will start to pump en masse. In other words – guys and gals, this is interesting times. Proper out-of-control volatility is back.