The weekly chart, if you will recall, suggests there will be higher prices in the weeks and months ahead, but a bright future does not help us as traders if we lose everything in a down day or two. The weekly chart is a good indicator for a buy and hold strategy, and can be helpful in establishing the general trend. But at the moment, the weekly is merely suggesting the longer term trend is up. That’s not good enough for active traders.
Yesterday, we looked at the daily chart for clarification about the short term direction of the market. If you recall, we concluded that the daily chart was not bullish. It was sitting just below the top of the square (resistance) and also was just below the 2nd arc. This is the same arc of resistance that violently bitch-slapped the market on Nov 13. IF the daily candle could close above the top of the square, and close within the 2nd arc pair, that would be a bullish move. It would show that this time the arc’s resistance was going to be overcome by the market. This was the conclusion of yesterday’s analysis.
In truth, my hunch was that the 2nd arc would fold this time around, and give us a bullish picture. But I did not recommend buying it because that had not yet occurred. Now here we are a day later, and the market has still not been able to get above the top of the square nor has it penetrated the arc. The daily candle just closed down, and the present daily chart opened exactly on the arc. This is a mildly bearish sign, so I am glad we did not buy this market yet!
Let’s look at an even shorter time frame for a clue before making any rash decisions. Let’s look at a chart with four-hour bars.
This is an eight candle setup. The immediate picture is, of course, sideways, with a projected 5 days or so before it reaches the 5th arc. But, the support of the 2×1 Gann line just failed. As I write these words the market is trying to get back above the Gann fan. If it can not do so, I will get concerned. It doesn’t look terribly good.
Let’s take a look at the chart and see how the market has danced with the setup until now.
A) We drew the 1st arc to the end of the 1sr thrust up. We counted backwards eight candles, and started the setup from the 1st candle after the low.
B) The market reached the top of the 2nd arc pair before it was stopped. It closed within the arc pair.
C) At the end of the 1st square the market reversed. The end of each square (vertical sides of the squares) are often places to look for a reversal. The market fell exactly to the bottom of the arc.
D) The arc became insurmountable overhead resistance for the next 18 candles. Price could not penetrate it.
E) The market found support at the 3×1 Gann line and bounced through the arc.
F) The market was stopped by the top of the 2nd square along with the 2×1 Gann line. This was the end of the square, and price decided to reverse.
G) Price moved sideways until it hit the 3rd arc.
H) The arc stopped the market for four candles, before it broke through. Once on the other side of the arc pair, price fell as it followed the arc down.
I) The market broke support at the 2×1 Gann line. The next candle opened below the 2×1. The market appears to be getting weaker.
The daily chart has been unable to penetrate the arc as well as the top of the square. This is bearish, to be sure. However, price has not been thrown off the arc like we saw on Nov 13. The market may intend to move sideways,, perhaps remaining under the top of the square for a few days until it reaches the other side of the arc pair. Or, it may be getting ready to break down and head for the 5th arc of the bearish setup which we looked at yesterday.
The four-hour chart is giving a similar message. It has been moving sideways, but it may be getting ready to break down as 2×1 support is failing.
Looking at the ratios on the price page we can see that there are currently more buyers than sellers. That may be construed as potentially bullish.
IMHO, this is a market that aggressive traders might want to consider shorting with a tight stop with a target of 290. More conservative traders should watch from the sidelines until the market gives an unequivocal signal to either buy or sell.
Happy Trading all!
Disclaimer: The author trades bitcoin and has an interest in the direction the market takes.
Images from Shutterstock.