The Bitcoin Bull Trap
This week the price of Bitcoin broke down to new lows, last seen in 2016 before the infamous run up to $1350. It has only been 20 days since the top. $895 caught plenty of traders off guard, as they soaked in the reality of a hard fork induced bear market. Since the last price analysis, when price hovered above $1200 support, my bearish forecasts to lower lows have materialized to this week’s low $895 on Bitstamp. It is not over yet. This week’s resurgence to a $1068 high, was accompanied by insane volumes, rekindling the fading hopes of bullish traders. But the reality is far from this.
In my last analysis, on the chart above, I concluded I was bearish for the foreseeable future, at least until $750 – $800 support was firmly tested. Since then, price declined sharply from $1250 in clear zig zag waves.The first drop to $948 caught traders off side, as many had expected $1000 support to hold. A correction at $1050 only lasted briefly, as selling momentum pushed all the way down to $940. Jihan Wu CEO of Bitmain and Roger Ver were largely responsible for a Hard fork induced drop to fresh lows. There was reason to be fearful, and there still is. The sentiment is not good for price.
The chart above shows the consecutive declines over the past weeks. A bounce off $948 support failed to break past the previous January 3 top at $1112 resistance, forcing price back down to below $900. This week, $895 held strong and forming a firm base for a profitable trade to $1060. The number of nodes signalling support for BU has declined; Bitcoin Core SegWit soft fork upgrade signalling is by far the majority. Sanity seems to have prevailed.
But, traders are confused
“I’m still in cash Afrikoin, but I’m a little worried… BTC wants to be bullish, the community isn’t as worried about the HF drama and at the end of the day neither side wants a contentious fork which is clear. Although I don’t see a reason for the price to push past $1300 right now, I also don’t see it falling to $700-$800…. I wish I got back in at $900”
This traders sentiment, reminds me of Elliott Wave B characteristics. Wikipedia
“Prices reverse higher, which many see as a resumption of the now long-gone bull market. Those familiar with classical technical analysis may see the peak as the right shoulder of a head and shoulders reversal pattern. The volume during wave B should be lower than in wave A. By this point, fundamentals are probably no longer improving, but they most likely have not yet turned negative.”
In my assessment, this is a wave B. The current state in the Bitcoin trading forums uncertainty of fundamentals, yet, prices have reversed and traders are getting excited. The past few days of consistent higher highs have resurrected the bullish forecast charts from the before the WinkleVoss twins ETF SEC decision. But fundamentally, little has changed.
The modest targets for my wave B count on the 3 day chart is anywhere up to $1200. The wave moves up in a zig zag fashion, and precedes a 5 impulsive wave C. So, after a top B, look out for 5 impulses wave down.
Bcnoob from reddit markets sees this current rise up to a peak as the right shoulder of a head a shoulders pattern that is forming on the 1 day and 3 day charts. Below is a chart of how a head and shoulder pattern would materialize
Both chart analysis’ support a capped local high before more downside. It is now a matter of how far up the current rise will go.
For balance, there are alternative charts that suggest a retracement to as far up as $1350, even as high as $1600.
“Once $1120 is broken, next target 1300+, by the book. I’d like to add that a powerful logarithmic trend that’s been forming for 1.5 years is currently boosting the support. I don’t think $1000 will be broken on a weekly timeframe. There is a lot of support gathering there: daily MA2000, weekly MA20, logarithmic and linear long-term trends.”
This chart above is an outrageous forecast showing $1600 as a target, suggesting $900 was a firm final support. In fact, expert trader John Bollinger, famed for inventing the bollinger bands technical indicator, called a W bottom via tweet saying
“a picture perfect Bollinger Bands “W” bottom with %b and BandWidth confirming.”
There is certainly a split on whether the final bottom is in and price is going back to retest the $1350 all time highs; or the alternative view that this is a correction before a resumption of the trend down to $800, $750 and even $600s.
The weekly chart above highlights the levels to look out for when price resumes the bearish trend. While the rise this week may persist, I continue to be bearish for the foreseeable future. I will be looking at how price holds up against the support levels charted above in green.