Bitcoin stable but unable to build a meaningful recovery

Jason Sen

After the spectacular collapse in Bitcoin and other cryptocurrencies at the start of the year, and the trough in early February, Bitcoin has become a more stable market, with decreasing volatility. Perhaps it is behaving more like a grown-up currency now. Rather than a wildly speculative instrument, pumped up by unrealistic ‘get-rich-quick’ punters.

The weekly chart below shows how the price has bottomed twice this year at trendline support. The first low in February confirmed the significance of the trendline going back to mid-2017. The second bounce in early April has also triggered a good recovery.

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The crypto bulls have come out of winter hibernation on social media as they celebrate a recovery of just over 50% from the 1 April low of $6427. They believe this is the start of the next leg higher and are desperate to convince the rest of the world. They support this belief with unfounded and perhaps desperate claims of valuations tens of thousands of dollars higher by year-end.

I am desperate to be convinced by the bulls to invest. So I spent two days on Twitter reaching out for a clear explanation of why I should buy into the ‘future of currencies’.

I do see how this is the future of currencies in the sense that we will transact business using digital currencies in the future. Unfortunately I cannot see one reason why this is an investment that will send the prices of cryptocurrencies to the moon. Honestly I wish I could – I want to join the party! However it’s very good entertainment reading some of the insane valuation ideas by those hoping to get rich lazing in front of their laptops and watching prices climb.

This leaves me with old-fashioned technical analysis, which has been a reliable way of making some sense of markets for me for over 10 years. It has certainly allowed me to see the potential for significant losses since January.

The daily chart below shows how the price of Bitcoin has made a slow-but-steady recovery above moving average resistance to test the four-month trendline resistance, dating back to mid-January. Note how this trendline came very close to the red 200-day moving average at around the $10,000 area.

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This resistance was enough to trigger profit-taking and some fresh shorts as prices dip back to the blue 100-day moving average support. Bulls absolutely must hold this blue line or they will lose more control of this market. Remember, we are still in a four-month bear trend.

Zooming in on the daily chart below we see that descending four-month trendline more clearly. But note yesterday’s bullish candle on the bounce off the 100-day moving average. Perhaps bulls have another chance to test the trendline now at 9600/9650.

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A break above 9700 would therefore be significant, suggesting a move towards the April high at 9950. Just above here we meet an important test of the red 200-day moving average at 10150/200. Bulls are only fully in control above here. They could then look forward to a more significant recovery through the summer months.

However, the short-term charts are less hopeful at this stage. The four-hour chart below shows prices breaking below a three-week bull trendline. This could signal a move towards short-term Fibonacci and moving average support at 8650/8600.

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The even shorter-term one-hour chart shows us trading in a channel. We have support in the low-9100 area, although we are struggling to make a recovery as we hold just below the blue 100-hour moving average in the low-9300 area.

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The short-term charts indicate we need to break above 9450 to stage a recovery into the end of the week. We would then target 9580 and 9740/50 before the 9950 high.

However, a break below the lower two-week trendline support at 9100 triggers a short-term sell signal. This would confirm what we already see on the four-hour chart and a potential move towards 8650/8600.

Jason Sen

Technical Analyst & Trader

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