Market Overview
The setup for Bitcoin is poised to be pivotal as we approach the close of the monthly candlestick next week. Should the bulls manage to secure a close near the monthly highs, we will see the formation of a “failed low 2” setup alongside a “high 2 setup.” This scenario is particularly noteworthy, as bears who initially sold the low 2, anticipating a buy climax stalling at resistance, may now find themselves in a precarious position.
Those bears who took positions on the low 2 will likely be compelled to exit if a strong bull bar materializes above the high 2. Presently, the chart is showing promising signs for the bulls. The potential for bears to cover their positions by buying at the market price adds an attractive dimension for bullish traders, enhancing the likelihood of upward momentum.
While the future is always uncertain, the repeated failure of bears to reverse the trend at resistance levels provides a favorable backdrop for bulls to push higher. This dynamic sets the stage for intriguing trading opportunities as market participants closely watch the monthly close.
Bitcoin
The Weekly chart of Bitcoin
The context of Bitcoin´s Price Action has been marked by a significant surge starting early this year, propelling the cryptocurrency from $30,000 to over $70,000. Following this impressive climb, Bitcoin entered a prolonged consolidation phase, oscillating within a $15,000 range for the past 20 weeks. This consolidation period exhibits characteristics typical of a limit order market, with traders predominantly employing strategies centered around buying at lower levels, selling at higher levels, and capitalizing on smaller price movements through scalping.
Seven weeks ago, our analysis highlighted the potential for a short-term decline. This prediction materialized with Bitcoin experiencing a down move of approximately $15,000. However, contrary to expectations of a further drop to around $50,000 or even lower before bullish engagement, the price did not reach this lower threshold, suggesting resilience among bulls.
The weekly chart reveals the formation of a double bottom pattern, accompanied by a full flag. Notably, there is not yet an Exponential Moving Average (EMA) gap, favoring the bulls, indicating that a major top may not have formed yet.
During this week, traders displayed a notable behavior pattern: instead of buying into the strong bullish close, they opted to purchase the pullback, creating a gap between this week’s low and the high from two weeks ago. The reluctance to buy last week’s close suggests that bulls might be cautious about purchasing at higher levels within the established 20-bar range.
Looking ahead, the price action suggests a probable test of the $70,000 level, potentially paving the way to challenge the all-time high. Bears, on the other hand, are likely to delay their selling activity until a clear bearish signal, such as a bear bar closing near its low. Given the observed limited downside potential, they might hesitate to initiate selling at the $70,000 mark, especially if the market sentiment continues to support bullish momentum.
In the event of a downside movement, it is more likely to stem from bulls capitulating rather than bears aggressively selling off. This scenario underscores the importance of observing the price behavior around the $70,000 level, as it is poised to generate intriguing trading opportunities.
The Daily chart of Bitcoin
The daily chart of Bitcoin reveals a notable reversal up from a bear trend, marked by a recent bull breakout. This breakout saw the price surge above a major lower high, now identified as the Breakout Point. By surpassing this significant level, the bulls have achieved their initial objective of halting the bear trend.
The bulls’ secondary goal is to establish a sustained upward trend rather than slipping into a trading range. This week, Bitcoin experienced a pullback to the Breakout Point, which was met with buying interest, underscoring the strength of the bullish sentiment. Currently, the bulls are actively testing the highs established during the tight channel phase.
In the wake of a robust bull breakout, there is a high probability that any pullback will either transition into a trading range or continue the upward trend. The less likely scenario is a reversal into an opposite trend. At present, Bitcoin is testing the highs of the bull breakout, and it remains uncertain whether the price will advance further. The fact that the price is situated in the upper third of the preceding bear trend suggests potential selling pressure, which increases the likelihood of the price evolving into a trading range rather than continuing the bull trend.
However, there is a body gap between the highest close of last week and this week’s lowest low. As long as this gap remains open, there is potential for the price to continue upwards. This gap serves as a critical indicator of underlying bullish strength and a possible continuation of the current trend.
Trading at the top of a range presents challenges, particularly for those looking to enter long positions. Traders may find it more advantageous to buy on pullbacks, such as High 2 or High 3 setups. These pullback entries offer a more favorable risk-to-reward ratio compared to buying at the trend highs.
Conversely, bears might seek to capitalize on second leg traps or selling a buy climax formation. They could also look for opportunities to sell at patterns such as Low 2 setups or Wedge Tops, anticipating a reversal or a deeper pullback.
In summary, the daily chart of Bitcoin presents a complex yet intriguing scenario. The next moves will likely hinge on the price action around the current highs and the open body gap.
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