Market Overview: Bitcoin
August has seen a dynamic start for Bitcoin, marked by a sharp sell climax that tested the significant $50,000 level, a key barrier. From this point, Bitcoin attempted a robust reversal towards July’s close, but the recovery was hindered by trapped bulls contributing to selling pressure. The initial buying surge during the bear breakout indicates a notable strength among bulls and a weakness in bearish momentum. However, the future trajectory remains uncertain, and this analysis will outline our expectations.
Bitcoin
The Monthly chart of Bitcoin
The current market structure on the monthly chart is characterized by a lack of a clear trend, indicating a tilt towards a trading range environment. This trading range contains a strong bull breakout that dominated prior months. After this significant bullish momentum, the market has transitioned into a phase of consolidation over the last six months, forming what we identify as a Tight Trading Range. This tight range reflects a period of equilibrium where neither bulls nor bears have gained enough control to push prices significantly higher or lower.
The distinction between the broader trading range and the current tight trading range is crucial. The broader trading range is a result of the market’s inability to sustain the momentum from the strong bull breakout that preceded it. This breakout was forceful enough to drive prices to test the all-time highs, but ultimately, it failed to maintain levels above these highs, causing the market to fall back into a prior established range. The inability to consolidate above these levels indicates that the market remains within the confines of a previous, more extensive trading range, lacking a decisive breakout direction.
Within this broader context, the market is currently near the top of the major trading range, which is the zone reached after the aforementioned bull breakout. This proximity to the upper boundary of the range has led traders to question whether the price action is forming a Major Double Top or possibly developing into a Major Cup and Handle pattern. Despite this uncertainty, bears have yet to create a compelling bearish setup following the April bear bar, which saw weak follow-through and was not aggressively sold at the bar’s low. This scenario suggests that traders remain inclined to buy pullbacks, favoring an always in long stance under the current conditions, implying a tilt towards bullish sentiment despite the ongoing consolidation.
This month’s price action appears to be forming a bearish bar, yet it is poised to close above its midpoint. The close is occurring within a previous 5-6 bar range, reinforcing the idea of a tight trading range. In such environments, traders are often advised to refrain from taking significant positions until a more definitive breakout or breakdown materializes in the coming months. While a test of the all-time high remains a plausible scenario, the pathway lacks a clearly defined setup on a bar-by-bar basis, indicating that traders should exercise caution and patience.
The Weekly chart of Bitcoin
The weekly chart further supports the observation that the market is currently experiencing a trading range market cycle. The trading range on this chart is relatively narrow, with price swings that do not originate from clear stop order setups, suggesting a limit order market is in play. In such markets, traders are more likely to place limit orders at perceived extremes, buying at the lower end and selling at the upper end of the range, rather than aggressively pursuing breakouts.
Given more than 20 bars of sideways movement, the likelihood of a significant breakout in either direction appears balanced. This reinforces the importance of higher timeframe analysis to establish a more comprehensive market expectation, as discussed in the monthly analysis. The pattern of lower highs within this trading range hints at the potential formation of a triangle, a pattern that often precedes a breakout either upwards or downwards. The current price action, characterized by this tight consolidation, proposes a breakout mode pattern may be developing, indicative of a market awaiting a catalyst for a more decisive move.
In the context of a limit order market, we anticipate buyer interest near the lower boundary around $50,000 and seller resistance around the upper boundary near $70,000. This behavior aligns with the characteristics of a trading range, where the market lacks a clear directional bias and both bulls and bears are reluctant to commit fully to a move. Analyzing the chart on a bar-by-bar basis, last week’s bearish movement emerged from a zone where bulls were previously trapped. However, now, there are no clear indications of trapped positions, aside from the $53500 bears that sold the bear climax at a prior lower low. This approach consists on utilizing the usual lower lows, higher lows, higher highs, or lower highs, which attract both breakout and reversal traders at those key levels.
Stop order bears see a bear bar closing near its low, resembling a low 2 setup following a failed bull breakout from a prior inside bar. Conversely, stop order bulls are looking for a bullish reversal bar to form a high 2 setup, anticipating that a reversal from the $50,000 level could drive a move back towards the current all-time high. These alternating moves—up and down, down and up—within a tight trading range reflect the inherent difficulty of trading such setups. Although trading within a trading range can occasionally provide good opportunities, it is often wiser to avoid engaging without a clear directional signal.
In conclusion, the current market presents a complex landscape with signals that suggest both bullish and bearish potentials, demanding careful analysis. While a retest of the all-time high remains a potential scenario, the absence of clear setups on both the monthly and weekly charts recommends that traders should remain vigilant and avoid making premature decisions.
We encourage sharing and discussing this analysis within your trading circles to foster a more profound understanding of the current market dynamics.
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