Market Overview: Bitcoin
Bitcoin: a potential bull swing could be in play, yet the likelihood of bull follow-through next week is not likely. On the daily chart, recent bullish setups suggest a cautious approach; while a bull breakout is possible, traders should be prepared for a pullback. A key level to watch is $63,400 since a +$5000 move down might follow.
Bitcoin
The Weekly chart of Bitcoin
The weekly chart of Bitcoin is currently characterized by a prolonged trading range, reflecting over 20 bars of consolidation following a notable bull breakout. This extended period of sideways movement suggests a market in equilibrium, where neither the bulls nor the bears have managed to assert dominance to drive a clear trend direction.
The $70,000 resistance level has proven to be a formidable barrier, with three distinct downward swings originating from this point. Each attempt by the bulls to breach this level has been met with significant selling pressure, underscoring the strength of this resistance zone.
A critical pattern on the weekly chart is the emergence of a wedge bottom pattern, a formation that often hints at a potential bull swing. Several weeks ago, Bitcoin experienced a sharp decline, testing crucial support levels. However, this downward pressure was countered by a strong surge in buying interest, resulting in the formation of a reversal bar that closed as a doji. This pattern indicates indecision in the market but also suggests that the bulls might be regaining control.
The $50,000 level remains a key focal point on the chart, serving as both a psychological anchor and a technical support zone. This level is significant not only because it represents a prior breakout point but also because it is where many traders, particularly those trapped in bearish positions, exited aggressively their trapped positions at breakeven. The influx of bears exiting aggresively (by buying) often marks the beginning of a bull swing. This swing aims to test at least the most recent major lower high around $70,000.
During the previous bullish phase, many long-term investors chose to take profits near the all-time highs, anticipating a correction that would offer a more favorable re-entry point. The pullback to the $50,000 level appears to have provided such an opportunity, presenting an attractive trader’s equation. With the Major Higher Low (MHL) near $40,000 serving as a potential stop-loss level, traders positioned themselves long around $50,000, with the objective of retesting the all-time highs. While some profit-taking occured around $60,000, the potential for higher prices remains if the broader market sentiment is bullish.
Nevertheless, despite the strength shown by the bulls, the weekly chart has yet to display a bull trend, which is not currently the case. This week’s bar is currently trading at a level where there were previously trapped bulls around $63,400. Despite a bull breakout on the daily chart (as we discuss below), next week will likely trade or close below $63,400. The odds do not favor another bull bar next week, based on current prices with Saturday and Sunday still to be traded.
Bears might find a “scalp” opportunity this week by selling at $63,400, with a potential profit-taking range between $55,000 and $60,000. While this is not a high-probability bet, given the broader pattern is a bull swing that started at the $50,000 breakout point; that being said, still there is a greater than 50% chance that next week will not produce a bull or strong follow-through bull bar.
For those looking to trade bear swings, awaiting the price at the major lower high or the all-time high appears a prudent approach, as bear breakouts within the current context do not seem favorable. It is anticipated that any dips, even those falling below $40,000 or further, are likely to be bought, suggesting that bear swings should be better traded on a lower timeframe chart.
The Daily chart of Bitcoin
The daily chart of Bitcoin reflects features observed on the weekly timeframe, indicating a market entrenched within a prolonged trading range. The daily chart case has a broad trading range aspect. Initially, the chart shows a bear channel on the left side, followed by a bull breakout. However, this bullish momentum was short-lived, culminating in a parabolic wedge top and hence failed bull reversal, which subsequently initiated a second leg down.
Following this bearish phase, Bitcoin found strong support at the weekly breakout point and the psychologically significant $50,000 level, triggering a robust reversal to the upside. In previous analyses, we highlighted the potential for bullish opportunities arising from a pullback from “Leg 1”, ideally forming a higher low. Classic setups, such as High 1, High 2, or High 3 patterns, often offer favorable entry points for long positions, particularly when a retest of the highs is anticipated.
Last week, we discussed the opportunity to buy on a High 2 setup, where the daily chart appeared to form a bull flag, indicating consolidation before a potential continuation of the upward move. Trading above Friday’s bull bar would constitute a High 2 entry point. At that time, the entry was above last week’s Friday’s high, but Saturday’s bull inside bar provided the actual setup. This trade has already yielded nearly a 1.5 risk-reward ratio, suggesting that some bulls may have taken partial profits or moved their stop losses to break even.
Other traders may have entered long positions above the Low 2 setup high, anticipating that bears who previously shorted the market would place their stop losses there. This entry requires higher prices than the High 2/3 setup discussed earlier. Whether one calls this a buy above the Low 2 setup or a bull breakout of a bull/bear flag or triangle, the objective remains the same: to target either the major lower high, equivalent to the size of a “second leg measured move up,” or to challenge the all-time highs.
Conversely, bears likely exited above the High 2 or were stopped out above the Low 2 high. They now view the current price action as a trading range, believing they are in the top third and that a swing down from the major lower high is possible. They are willing to sell earlier only if they perceive weaker bullish momentum.
In the weekly chart analysis, we mentioned that we do not expect next week to be a bull bar, implying that while a continuation of the bull swing is possible, it is not what we anticipate. This suggests that bulls might consider buying at lower prices than current ones. Traders who entered earlier during the leg 1 pullback may consider locking in some profits if the price does not continue rising as expected.
As always, we encourage you to share your insights and thoughts in the comment section! If you find this analysis helpful, please share it with fellow traders to foster informed trading decisions.
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