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Time of Analysis: 13h00 UTC
Yesterday’s analysis proposed confirmation signals for both advance and decline. The development of price action since then has confirmed that additional decline is on the cards. We’ll consider the likely targets after a look at the Bitcoin price chart as it stands at the start of the US session.
Price dropped down to a trendline connecting the June high, the August closing low and last week’s closing low. The trendline intersects with the 2.618 Fib extension at $265 where the price low printed. A lower target waits at $361 – a 3.618 Fib extension of the first wave of the current larger degree wave of decline. Price may not attempt it just yet since a move up is underway at the time of writing.
In accordance with a confirmation signal defined in yesterday’s analysis, a 4-hour candle had opened and closed below the long-term $380 support level, thereby invalidating prospects of a reversal from current levels. In typical market duality, price may return to $400 (or above) in order to prolong correction prior to the final five waves of decline.
The purple channel of advance has been invalidated. We can now turn our attention to the red channel and consider the path of price going forward.
Depending on how rapidly decline unfolds price could hit the lower trendline anywhere between $200 and $300. Except for the Fib extension at $361 and support at the previous decline low of $340, there are few obstacles between $380 and $200. The zone between the lower channel trendline and $340 may be traversed with great rapidity and the final journey should, according to the Wave Principle, be a five wave structure.
As always, the assumption remains that until confirmation to the contrary is obtained, the larger downtrend remains in force. We keep an eye on the 20MA and 200MA (as per yesterday’s chart) for evidence of an attempt on the 4-hour 200MA. The reason that we keep those chart patterns in mind is because:
At the time of writing, the MACD and RSI indicators are showing substantial divergence from price, thereby implying that an upward correction is due. Its distance of travel cannot be determined at the time of writing because an initial wave up has not yet completed. An analysis update will be posted as soon as the chart gives more clues.
The recent corrective structure has a strong resemblance to a previous structure with a similar form and function. The two corrective structures are circled in red in the Bitstamp hourly chart below. If price action were to unfold in a similar manner then we can expect the current upside correction to be a three wave structure similar to the structure that followed the previous fractal pattern. The first wave should target $396, and then decline, followed by a retrace above $400.
If price action fails to make the initial journey to the vicinity of $400 then, the identified pattern is not what is unfolding.
Despite strong divergence in RSI and MACD, it is still possible that the decline continues in search of the Fib target at $360. However, even with a marginal new low, the fractal pattern discussed previously seems a higher possibility outcome.
The final leg of decline since June has been protracted. It is still in effect, and $300 is finally within reach, although a decline low of $200 is possible.
Currently, a complex correction with a large wave degree is in progress. The structure implies a fourth wave which would setup a final five wave decline to the bottom.
Traders are advised against trading any aspect of this fourth wave because it is bound to display variation from its previous fractal structure. Instead, wait for decline to resume if you’re looking to short-sell the market. Alternatively, engage a strategy of gradually scaling into the coming reversal.
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Bitcoin price charts from TradingView.
Images from Shutterstock.
Last modified (UTC): July 12, 2015 10:52