Bitcoin Chart Analysis – Bitstamp Sub $400 Targets

May 12, 2014 12:50 UTC
Bitcoin Sub Targets $400

BTC/USD rebounded off its upper channel trendline and has resumed the downtrend. This outcome was discussed last week and with Bitcoin price action remaining inside the decline zone, the implication is a return to the $400 price level.

I am going out on a limb here, writing this Bitcoin chart analysis during the Asian session before the European session shows it’s hand. Whatever I commit to writing here will be confirmed or invalidated during the next few trading sessions.

Takeaway

Decline is in force. Price has been rejected by the decline’s upper channel trendline. The market seems to have no alternative but to find a strong resistance level lower down from which to generate sufficient upward momentum via a bounce. Targets below are $400, $380, $350 and $260. Above, currently near $450, a breach of the upper channel line will signal a change in the direction of trend.

This week we switch to the Bitstamp BTC/USD chart which shows fewer price anomalies than the equivalent BTC-e chart and tends to trade at a price between $5 and $20 higher than BTC-e. Wave structures on both charts are, for the most part, identical, and the Elliott Wave count is the same.

Market Week Recap

Before proceeding, a quick review of the BTC-e chart. Price confirmed last week’s analysis by reaching for the upper decline trendline before kissing it goodbye and dropping away in wave action consistent with the pink triangle decline pattern. Momentum had slowed to a crawl as price approached $450 to the upside and – with nowhere else to go – price will seek support lower down. At the time of writing the longstanding support at $425 has halted the decline, but it is being subjected to heavy shelling, and it does not appear that it will hold for long.

The first target is near $415 – the level that has refused price its passage to the nether regions on two occasions in the past few weeks. The strength of this level is considerable and should it give way, two even stronger levels lie in wait lower down, namely the $400 “psych” level and the long-term rising trendline (from 2012) which currently lies at $390.

Exactly how price is going to get through these levels is hard to understand, but get through it must, because obligatory Fibonacci extension levels are drawing it toward $360, $320 and then $260. There is no productive use in speculating about whether it might be a Bitcoin specific news catalyst or perhaps events that are exogenous to Bitcoin that create the conditions to break such longstanding support. All that can be objectively stated is that there is much gloom evident amongst Bitcoin holders – with many apparently throwing in the towel and looking to migrate out of BTC and into Gold or altcoins. Interesting times, indeed. What’s more, the chatrooms are full of defeated talk about “news out of China” with the assumption being that Chinese authorities determine price direction – an irrational notion and a self-fulfilling prophecy!

Bitstamp Long-Term Chart

To open this week’s new Bitstamp chart analysis, here is a long-term log scale chart with major trendlines, support and resistance levels annotated.

Bitcoin has run up against a descending resistance level (line RS) of some magnitude. The pent-up progressive energy should unleash an explosive wave to the upside once this resistance is breached. However, each of five upward stabs at this level has been rejected decisively. The present strategy of decline-regroup-attack is futile. Looking at the price action following previous declines, it is apparent that the market’s last resort strategy in this circumstance is to drop away from the battlefront completely and to bounce from a strong lower support level in order to generate sufficient momentum to penetrate the decline barrier.

Such support can be found at various long-term (but minor) channel lines, and more certainly at channel lines KL and EF. Perhaps one of the minor channel lines can provide the needed bounce, but this particular decline seems grave and may need to hit major resistance in order to catapult through the blockade above. Ironically, resistance level PQ is impeding the market’s journey south. On the way down, the minor channel lines should prevent free fall – some more than others, no doubt.

4 Hour Chart & Targets

A closer look on the 4 hour Bitstamp chart (logarithmic scale)

Exactly as with BTC-e, price failed to breach the declining channel’s upper trendline. This is a Bearish confirmation sign that can be seen in all the exchanges’ charts.

The trendlines visible on this 4 hour chart are unaltered trendlines from the Daily chart shown above. The only addition is a dotted green trendline which may serve as a descending lower support level for the decline.

Targets are found via Fibonacci extensions projected from the first wave down in each leg of decline. Bitcoin honors these in almost every instance – the reader may verify this via perusal of price history. After negotiating the reaction zone at the confluence of trendlines in the $420 area price should make its way to the 2.618 extension level near $350 – marked by an orange circle on the right of the chart. The 3.618 level waits at $280 – although this price level does not coincide with a major support zone (such as line KL in the longterm chart above). We’ll have to see closer to the time exactly how the market bottom resolves.

Mind Your Head

As always, any breach of the upper blue trendline that has capped decline will be an initial signal that trend change is underway or has already happened. For now, we have no confirmation that this may be the case, and we can only assume the path of price action is pointing down in its search for support strong enough to effect a bounce.

Around current levels (above $400) it has found none.

Disclaimer

The writer is fully invested in Bitcoin via BTC-e and Bitfinex – short, maximum leverage. Trade and Investment is risky, but not as risky as some other things out there. Take care to only take action in the market when you are 100% sure of the outcome. CCN accepts no liability whatsoever for losses incurred as a result of anything written in this report.

Last modified: July 12, 2015 10:41 UTC

@venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.