With the Silk Road wallet auction passing as just another day in the Bitcoin diary, and having failed to produce the fever-pitched melodrama that market participants seem to need in order to spur them in a direction, price had dropped away from its anticipatory high near $660 (Bitstamp).
Is the market seeking out that trendline in a bout of technical trade down to support? Or has the rally run out of steam – dejected and cynical at its own inability to penetrate higher?
The analysis below explores both the upside and downside scenarios in the light of objective technical evidence on the chart. The Bitstamp 4 hour chart is used because of it’s mild representation and popularity.
Firstly, a glance at the bare essentials. Price action since early March includes the decline low near $340 in mid-April, as well as two lower highs in fizzled approaches of the $700 level that was last touched (and rejected) in early March. Since the first counter-trend high of $540 in mid-April, price had retested this level, from above, on five occasions – each time affirming $540 as support.
Glancing at the rudimentary indicators, we can see that oscillators have grouped in over-sold territory and the momentum indicator (bottom) is nearer its lower Bollinger band, as well as indicating a “reverse” divergence whereby the indicator has made a lower low that is not being confirmed by price. Conventional interpretation of the aforementioned indicators implies that reversal to the upside is imminent.
Fibonacci extensions of the initial wave in each larger move shows BTC’s preference for the .618 level as a reaction zone. This is evident in both the April/May decline as well as in subsequent advancing waves where the third subwave of advance achieved 1.618 of the initial push up.
The general assumption is that the Bitcoin price is currently in a larger advance and that we are witnessing a consolidation of energy before thrusting above $700. In this scenario, the support provided by the red dotted long-term trendline should hold, and the critical reversal level of support is currently in the region of $590 directly below.
Assuming a bounce and continuation higher, Fibonacci extensions to the upside can be derived by projecting .618 levels from the three-wave structures, as follows:
$738 emerges as an initial price target, followed by eventual targets at $850 and/or $880, where subsequent correction would be appropriate. The manifestation of the $880 level is interesting because this level proved contentious during the November 2013 advance as well as during corrective action in December and January. That price should target it again seems as natural as .618.
Coming out of nowhere, a bearish claw can slash all of the above to shreds with a thin red line below $590. Revisiting the indicators, the conventional interpretation of imminent reversal is perhaps too optimistic, since objectively the MACD has not yet touched its lower Bollinger band, and the stochastic oscillators have not both reached zero. Even when these conditions are met, indicators can remain at extreme full-tilt for longer than anyone’s pocket is deep.
Hence, traders and investors should heed the $590-$605 level and use it as a pivot for subsequent trade. If the bear returns, it can be expected to seek satisfaction at $450 as shown in the chart above. On the way down, price could be expected to grapple with the $540 support level which will reveal more about the larger unfolding wave structure. A return to $540 could herald a drawn-out correction as implied by the wave labels: once three-wave structures start compounding, the prospect of sideways price action becomes inevitable. Please, Bitcoin Market, don’t do this…
Choosing a direction here is difficult, but the decision of establishing (or adding to) a trade is cut-and-dry thanks to the critical juncture around $600. The trader’s friend here is the long-term rising trendline shown in the charts above and it should act as a watershed for the market’s eventual direction during the next ten days.
Of course, advance can begin from any level between the current and $590. Indicators on smaller timeframe charts have been maxed out for several intraday sessions and there are daily and weekly pivots, as well as moving averages providing support between $630 and $610. These have not been included in the above analysis for the sake of highlighting the major trendline’s influence at this juncture. Traders should consult their charts for smaller timeframe specifics. Take care and trade safe.
The writer is fully invested in Bitcoin via BTC-e and Bitfinex. 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 your intended actions for the eventual outcomes. CCN accepts no liability whatsoever for losses incurred as a result of anything written in this report.
Featured image by Shutterstock.
Last modified (UTC): July 7, 2014 10:01