Home / Analysis / Crypto / Technical Analysis / Bitcoin Price Drop Creates Third Monthly Bearish Engulfing Candlestick in History – What Are the Implications for BTC?

Bitcoin Price Drop Creates Third Monthly Bearish Engulfing Candlestick in History – What Are the Implications for BTC?

Last Updated May 1, 2024 8:46 AM
Valdrin Tahiri
Last Updated May 1, 2024 8:46 AM
By Valdrin Tahiri
Verified by Peter Henn

Key Takeaways

  • The Bitcoin price created the third monthly bearish engulfing candlestick in its history.
  • BTC is at risk of breaking down from a parallel channel and invalidating its bullish wave count.
  • Can the Bitcoin price bounce and save this channel, or will the plunge deepen even further?

April was a decisively bearish month for Bitcoin and the rest of the cryptocurrency market. While the month started with a bounce and nearly a new all-time high on April 8, the price created a lower high and has fallen over 20% since.

The price trades at a confluence of support levels. Also, its bullish wave count is at risk of being invalidated if the plunge deepens. Will BTC bounce and salvage its count, or is it mired in a deeper long-term correction instead?

How Did Bitcoin Close the Month?

Bitcoin started April at a price of $71,280. While it reached a high of $72,797 on April 8, it fell the rest of the month, reaching a low of $59,191 and close of $60,672. Due to the close being lower than March’s opening price, BTC created a bearish engulfing candlestick (red icon) in the monthly time frame.

Now, BTC risks falling below the $60,500 horizontal area, which acted as the all-time high in 2021. Whether it closes above or below this area will be critical in determining the future trend’s direction.

Bitcoin Price Long-Term Movement
BTC/USDT Monthly Chart | Credit: TradingView

The weekly RSI and MACD are both giving bearish readings. This is especially visible in the bearish divergence (green) of the MACD. It is unclear if the RSI has made the same bearish divergence.

While there is a bearish divergence in place since January 2021 (white), that has already played out with the 2021 all-time high (yellow). The second high has not made a bearish divergence yet.

It is worth looking at previous bearish engulfing candlesticks in the monthly time frame to determine its implications.

Previous Bearish Engulfing Candlesticks

The first two instances of bearish engulfing candlesticks happened in August 2015 and January 2016 (red icons). Even though these are considered bearish patterns, the BTC price increased the next month and even resumed its upward trajectory in the months that followed.

Both candlesticks differ to the current one since they were created less than a year after the price bottom in January 2015. In contrast, the current BTC bottom was made more than 16 months ago in November 2022.

Bitcoin Price Previous Bearish Candlesticks
BTC/USDT Monthly Chart | Credit: TradingView

A near occurrence was in January 2018, which marked the absolute cycle top. However, this was not a bearish engulfing candlestick, since monthly close was only slightly higher than the previous month’s opening.

Next month, the BTC price fell and then bounced. However, the rest of 2018 was bearish.

Bitcoin Previous Monthly Bearish Candlestick
BTC/USDT Monthly Chart | Credit: TradingView

So, there have only been two bearish engulfing candlesticks in the monthly time frame in Bitcoin’s price history, and one that almost created a bearish engulfing candlestick. While both bearish candlesticks led to an increase next month, the market movement is not the same as in the current one. Also, there is insufficient data to make a prediction on the BTC price movement based on the bearish candlestick alone.

BTC Price Prediction: What’s Next for Bitcoin?

The BTC  price has fallen inside a descending parallel channel since March 14. Such channels usually contain corrective structures. If this is the case, the decrease can be part of wave four in a five-wave upward movement (black).

However, the BTC price risks breaking down from the parallel channel if today’s decrease continues. Conversely, a bounce would create a long lower wick and reclaim the channel’s support trend line.

BTC Price Fourth Wave Pullback
BTC/USD Daily Chart | Credit: TradingView

BTC trades very close to a confluence of support levels at $56,400. The 0.5 Fibonacci retracement support level creates this support, aligning with the middle of a long-term channel connecting wave one and two. The bottom of wave four often reaches the middle of this channel.

So, if BTC bounces close to the current level, it will maintain its bullish wave count, in which the decrease is part of wave four in a five-wave upward movement. However, a Bitcoin price close below this level will invalidate the count.

Short-Term Indicator Readings
BTC/USDT 12-Hour Chart | Credit: TradingView

As for the shorter-term movement and readings, the 12-hour RSI has crossed into oversold territory (green circle) for the first time since January 20, when the upward movement started (white). Also, the 12-hour MACD is close to generating a bullish divergence, albeit unconfirmed. A strong bounce and close above $58,000 will confirm it.

So, technical indicators in short-term time frame show conditions ripe for a bounce, which also aligns with long-term Fibonacci, diagonal and horizontal support levels.

BTC Approaches Make-or-Break Support Level

To conclude, the monthly bearish engulfing candlestick does not have any clear implications for the future BTC price, especially when combined with the bullish retest of the previous all-time high.

While the wave count is unclear, the BTC price trades very close to a confluence of Fibonacci, horizontal and diagonal support levels.

For the bullish count to remain valid, BTC has to bounce at the current level. A deeper correction will invalidate the bullish wave count and could lead to a long-term decrease.

Was this Article helpful? Yes No