The Bitcoin price rally looks set to continue higher after correcting Wednesday's powerful advance. Various technical indications of continuing advance…
Time of analysis: 15h00 UTC
Monday's messy price action changed gear on Tuesday and Wednesday when Bitcoin showed its stuff by charting a legendary price rally that advanced relentlessly for over $100.
Our moving average methodology holds and our target near $500 still looks like the inevitable destination.
The following Bitstamp 4-Hourly chart shows how the cross-over of the green 20MA and 200MA ignited a moon rocket. A new feature on the chart is an orange 100-period moving average (100MA) which will come into focus when we look at the daily candle chart in a moment.
Bitstamp 4-Hourly Chart
Above price, around $500, are two significant markers - the 1.618 Fibonacci extension of the initial wave from 5 October's decline low at $275 to $417 (Bitstamp pricing), as well as, the daily 200MA at $499.
Besides the fact that the RSI and MACD indicators are favorably disposed to additional advance, the attraction of the daily 200MA at $499 is important. Without making any assumption about its role, let's look at the daily chart and the 200MA's influence in the past.
Bitstamp Daily Chart
The usual 20MA (green) and 200MA (red) are displayed on the chart, but another moving average, the 100MA (orange), has been added due to it's current role in pausing price movement.
This analysis column often mentions the interaction of the 20MA and 200MA in confirming Bitcoin price advance. Historically, every Bitcoin price rally has advanced most powerfully when 1) price trades above the 20MA and 2) the 20MA is above the 200MA. It is self-evident that price leads and the moving averages (calculated from price) follow but in a strange feedback relationship between price and MA, traders use moving averages to gage trend. Moving average analysis is especially popular among institutoinal traders who measure "percentage above-or-below" a moving average to imply an imminent return to it. The helix-like dance between price and its moving averages is evident in many price charts and, also, in the Bitcoin price chart.
At annotation "P" price can be seen advancing above the 20MA as it bumps up against the orange 100MA from beneath. Price climbs above the 100MA but the 100MA's downward trajectory causes it to cross below the 200MA and sympathetic trade pulls price back down to the 100MA before advance resumes. The upward bounce is presumably the result of bargain buying below $100.
Conversely (or bearishly), at annotation "Q", trade seeks to return price to the red 200MA from an upward bounce off an ascending long-term trendline. Price bumps into the orange 100MA and consolidates around it before launching higher to its objective level at the 200MA. Notice how price essentially spent June and July of this year trading around the 200MA.
The wave structure and chart configuration of the present advance is visibly similar to the advance that occurred in May of this year. The rate of advance is apparently stronger and after completing a consolidation around the 100MA it seems price will target the 200MA at $499 - at the very least. What price does once $499 has been achieved remains to be seen and will give us vital clues about what to expect.
At this time, it must be noted that the green 20MA on the daily chart is quite some distance below the red 200MA and relentless advance above $500 is unlikely until the MAs are closer together. The surging quality of the current advancing wave means price may overshoot the 200MA ($500) but traders should allow for the possibility that price may snap back to $500 very quickly.
Bitstamp Hourly Chart
The following hourly chart is included because it illustrates the reverse divergence of the RSI and MACD indicators from price. Price is making a higher low, but the indicators (as annotated in magenta) are making lower lows in relation to their equivalent prior swing lows. Reverse divergence is a strong indication that higher highs can be expected.
Do not jump into the market because of the reverse divergence shown above - it may still become more extreme - wait for price to make higher highs and higher lows above the green 20MA before joining trend.
The Bitcoin price rally looks set to continue. The critical chart indicators are the 20-period moving average as well as the 200-period moving average. Currently, price is consolidating around the daily 100MA around $420 on the Bitstamp chart.
The highest probability target for the price advance is $499. Price may over-shoot this level but seems certain to return to it soon after, so this is a good level to take profit and await further clues from price.
It is best advised to wait for price to make higher highs and higher lows above the hourly green 20MA before getting in on the uptrend.
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Last modified (UTC): July 12, 2015 12:12 PM