Market Overview: Bitcoin
Bitcoin reflects a period of sideways trading that following a significant move, as the market navigates through a tight range after last week’s $10,000 weekly candlestick.
This sideways movement is typical after such a large price move, as the market takes time to digest the increased risk. The weekly chart suggests the potential formation of a long-term bottom, driven by a robust rebound from the $50,000 level. However, the market has yet to confirm a resumption of the bullish trend.
Currently, Bitcoin’s price action could indicate either a bull flag or a final flag, with the strong reversal up from $50,000 and three failed attempts to push down from $70,000 hinting that the bulls might be preparing for another advance.
Bitcoin
The Weekly chart of Bitcoin
The weekly chart of Bitcoin paints a picture of a market entrenched within a prolonged trading range, encompassing over 20 bars that following a notable bull breakout. This extended period of consolidation suggests a stalemate between buyers and sellers, with neither group able to assert sufficient control to define a clear directional trend. Significantly, the $70,000 level has emerged as a formidable resistance, as evidenced by three distinct downward swings initiated from this level, each time thwarting attempts by the bulls to push prices higher.
The current market structure reveals a wedge bottom pattern, a technical formation often indicative of a potential bullish reversal. Last week, Bitcoin faced a sharp decline, testing key support levels; however, this downward pressure was met with a surge of strong buying interest. The resulting price action led to the formation of a reversal bar, that closed as a doji, signaling that the bulls are regaining their footing.
The $50,000 level, a psychologically significant round number and also a prior breakout point, remains a focal area. This level is not only a psychological anchor but also a technical support zone, where many market participants, particularly those who were previously trapped in bearish positions, were seeking to exit at breakeven. This influx of buying pressure from both new entrants and exiting bears has been fueling the last week’s upward reversal.
During the previous bull run, many long-term investors took profits near the all-time highs, anticipating a correction that would offer a more favorable re-entry point. The current pullback towards the $50,000 level seem have presented that opportunity, offering a more attractive risk-reward ratio. With the Major Higher Low (MHL) around $40,000 serving as a potential stop-loss point, traders might consider positioning long near $50,000 with an eye towards retesting the all-time highs. While some profit-taking might occur around $60,000, the possibility of higher prices remains intact, especially if the broader market sentiment turns more bullish.
Despite the resilience shown by the bulls, as evidenced by the reversal from the three downward pushes following the all-time high, the weekly chart does not yet display a a bull trend. The presence of both sell signals and resistance on higher timeframes suggests that while the bears have not capitalized on these opportunities, there remains a degree of uncertainty.
The large bar from the previous week, spanning $10,000, has likely caused hesitation among traders, as expected, as the risk-reward profile becomes less favorable for those currently positioned in the market. The optimal strategy might involve waiting for a pullback towards $55,000 before entering long positions, with the potential to target the previous all-time highs, or lower the timeframe to find better opportunities to catch that move.
For the bears, the situation is challenging. The current setup might appear as a Low 1 setup, offering a potential shorting opportunity. However, the strong reversal up from support has likely diminished the relevance of previous bearish setups, such as the bear micro gap formed before the Low 3 setup from two weeks ago. If bears are still active, they might prefer selling above the Low 1 rather than below it, where the risk of bulls engaging in the zone is higher.
In conclusion, the $50,000 to $60,000 range appears to be a critical buy zone, supported by technical and psychological factors. However, the lack of a definitive bullish trend suggests that while the area might mark a potential bottom, further confirmation is needed to gauge the strength of any subsequent upward movement.
The Daily chart of Bitcoin
The daily chart of Bitcoin mirrors the observations from the weekly timeframe, reflecting a market caught within a prolonged trading range. Initially, the chart reveals a bear channel on the left side, followed by a bullish breakout. However, this bullish momentum was fleeting, leading to a failed reversal from a wedge top and subsequently initiating a second leg down.
Following this bearish phase, Bitcoin found support and reversed strongly to the upside. During last week’s outlook, we highlighted the potential for bullish opportunities arising from a pullback, ideally forming a higher low. Such setups, including classic patterns like High 1, High 2, or High 3, typically offer traders favorable entry points for long positions, particularly when a retest of the highs is anticipated.
This week, the daily chart has potentially formed a bull flag, suggesting consolidation before a possible continuation of the upward move. Trading above Friday’s bull bar would constitute a High 2 (technically a High 3) setup, signaling a potential buying opportunity.
A strategic approach might involve entering long positions above the Low 2 setup high, where bears that previously shorted might have placed their stop losses. These stops, when triggered, will result in market buy orders, presumably increasing the likelihood of higher prices. A strategy could involve setting a stop-loss below this week’s low and targeting a return to the all-time highs, offering a favorable trader’s equation.
On the other side, bears have had opportunities, particularly at the double top at the EMA, a Low 2 setup, for initiating short positions. The expectation from this setup is to test lower support zones on the chart. Bears may now see the current market structure as a bear flag, where they aim to break below the lower trendline.
Another bearish strategy might involve placing limit orders to sell above the recent sell climax high. If the Low 2 setup fails to materialize, bears might retreat, choosing not to re-enter until prices approach the sell climax high.
It is important to recognize that trading ranges, such as the current one, often precede contraction patterns like triangles or tighter ranges. These patterns trap both bulls and bears, before the market decides on a decisive direction.
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great analysis. thank you
Hola Erik! Thank you for your kind words! We are glad you found the analysis helpful. If you have any questions or insights you’d like to share, feel free to join the discussion. Looking forward to seeing you in future reports!