Bitcoin Resistance and Support Levels Converge – Bullish BTC Pattern and Bearish Wave Count Clash
How Will Bitcoin React After Return to Support? | Credit: Hameem Sarwar
Key Takeaways
- Bitcoin (BTC) trades inside a critical long- and short-term support level at $49,500 – $60,700.
- The BTC price has corrected since reaching an all-time high price of $73,777 on March 14.
- There are signs that point to the correction being over, and those that predict a deeper drop.
Bitcoin is stuck in no-man’s land in the past two months, consolidating inside a long-term range. It currently trades 16% below its all-time high price. The price broke down on May 1, it started an upward movement the next day, but that could not be sustained either.
While the reclaim of the support area is a positive sign, the lack of a follow through is seen as a sign of weakness. Previously, it has indicated that another breakdown is in store. With support and resistance levels converging, the resolution of the current movement can determine whether a new all-time high or a correction toward $51,000 will happen.
Breaking Down the Importance of Bitcoin’s Support Level
The BTC price has fallen since its all-time high of $73,777 on March 14. After a failed attempt to initiate an upward movement, Bitcoin created a lower high on April 8, resumed its downtrend and culminated with a low of $56,552.
While this move seemingly caused a breakdown from the $60,700 horizontal support area, the price reclaimed it (green circle) on May 3. These failed breakdowns and reclaims are bullish developments, and often lead to rapid upward movements.
In fact, a similar reclaim in January (yellow circle) set in motion the increase that led to the all-time high in March. However, this was not the case in the current movement, since Bitcoin has returned to the area once again, evidently to validate it as support.
This did not happen in in the previous movement. Rather, the price did not look back and increased parabolically for over a month.
Similar Upward Movements Happened Before
Going further back to the start of the upward movement, there have been two similar breakdowns and reclaims. In May and June 2023, BTC fell below the $26,650 support area twice (yellow) and reclaimed it. However, it returned to the support area after doing so, instead of immediately moving upward.
In turn, this caused another breakdown and decrease of 7% before the price eventually started a sustainable upward trend.
Then, in September, BTC broke down from and reclaimed the $25,650 support (green circle) and started an upward movement. Bitcoin did not return to the support level, rather immediately started moving upward.
So, at first glance, the return to support after reclaiming it is a negative sign for Bitcoin’s future outlook. In three such previous movement, Bitcoin sustained its increase twice, and failed to do so once.
Whether it returned to support after reclaiming could be used to forecast the future of the trend.
In any case, the sample size is not sufficient to make a BTC prediction based on this occurrence alone. Rather, looking at lower timeframes and indicators is needed to determine if a bounce or breakdown is more likely.
Short-Term Movement Gives Areas of Interest
The six-hour time frame shows a descending resistance trend line existing since April 23, which has caused four rejections (red icons) so far. The timeframe also reiterates the importance of the current Bitcoin support, though it widens it until $59,950, the 0.618 Fibonacci retracement support level of the upward movement.
As long as the price stays above this level, it is possible the current decrease is a reaction to the impulsive upward movement starting in May (green).
If this is the case, there are two possibilities for the wave count. An A-B-C correction (black) in which the low is already in, and a W-X-Y structure (yellow) in which Bitcoin will fall slightly below the 0.618 Fib retracement support level before eventually breaking out.
So, the six-hour time frame further narrows the areas of interest to the $59,950 support and descending resistance trend line which currently stands at $62,300.
Bullish BTC Pattern Leads to Breakout
The creation of an inverse head and shoulders pattern and the daily MACD supports the bullish Bitcoin scenario.
In this potential inverse head and shoulders pattern, BTC is completing the right shoulder. The neckline coincides with the previously outlined resistance trend line. So, a breakout from it will confirm the bullish pattern and take the price to the $71,000 resistance area.
There is a bullish divergence developing in the MACD’s momentum, aligning with this positive outlook.
The inverse head and shoulders pattern lines up perfectly with the reclaim of the $60,800 long-term support, since both shoulders are being created inside this level.
Wave Count Gives Bearish Scenario
The daily time frame wave count points to the correction not being over yet. In a probable long-term wave count, BTC is in the Y wave of a W-X-Y correction (white). The sub-wave count is in black.
While the X wave is unusual, it still falls inside valid parameters for a corrective wave. Giving waves W:Y a 1:1 ratio will lead to a low of $51,000. This is also a horizontal support area.
The lack of bullish divergence in the RSI and the fact that the indicator trades below 50 is in accordance with this scenario, while the strong support at $51,000 further adds to it.
Bitcoin Price Trades in Critical Range
The future Bitcoin trend is still unclear, since mixed signs support both a bullish and a bearish possibility. A daily close below the $60,800 support area or a short-term close below $59,500 will go a long way in suggesting the bearish possibility is more likely, causing a decrease to $51,000.
On the other hand, a breakout from the short-term descending resistance trend line at $62,300 will point to the trend being bullish.
In any case, it is not likely that the long-term bullish BTC trend has ended. Rather, an eventual new all-time high is probable after the current correction is over.
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