Bitcoin bears appear to be slowly taking control
Bitcoin bulls were celebrating in the spring as the cryptocurrency sprang back to life, jumping from a low this year of $3328 to almost $14,000 over a period of less than five months. Fantastic returns but the euphoria was short-lived, as is normal in a bear market bounce.
In the weekly chart below we see a huge shooting star candle warning as the currency gave up all the gains for the last week of June by the end of the month. In the middle of July bulls gave it another push higher. However this peak could not re-test the June high and once again we saw a negative candle form, with a long upper wick and big red body below.
Nevertheless bulls have managed to support Bitcoin enough to keep it stable. They have successfully established a floor over the past three months around the longer-term 38.2% Fibonacci level of $9440 on the weekly chart.
Does this mean bulls are getting ready for a breakout to start a new leg higher into the end of the year? There is a large clue in the pattern which looks likely to complete in the near future on the daily chart.
According to Investopedia: ‘A descending triangle is a bearish chart pattern… created by drawing one trend line that connects a series of lower highs and a second horizontal trend line that connects a series of lows. Oftentimes, traders watch for a move below the lower support trend line because it suggests that the downward momentum is building and a breakdown is imminent. Once the breakdown occurs, traders enter into short positions and aggressively help push the price of the asset even lower.’
We have a very large and very clear descending triangle in the daily chart. As I write we are dipping towards the lower trendline support at around $9450/9400. This may well hold when tested and we could bounce again, as we have done in July and August.
However it is important to note that the bears are becoming more and more confident. In a descending triangle the bears are happy to sell at lower peaks, which of course forms the descending upper trendline. In this case there is added pressure to the downside with prices trading well below the blue 100-day moving average at $10,550.
Of course the Bollinger bands have narrowed with the decrease in volatility, which many technical analysts see as a warning of an impending breakout. As the price nears the apex of the descending triangle we get closer and closer to the breakout. This is increasingly likely to be to the downside, with pressure already building in that direction.
The distance from the support to the first high needs to be measured for us to establish a downside target. This measured distance is then projected to the downside where the target price can be set. This is a move of about $3200 from $9400 giving us a minimum target of $6200.
This means we could break below the red 200-day moving average, currently at $9720 but rising, the 100-week moving average at $7800/7750, and the green 500-day moving average at $6700. Prices trading below these moving averages would be further bearish signals and could therefore increase pressure to the downside. Remember that $6200 may only be the minimum target on the breakout.
Can bulls be saved? Yes of course, if we see a sustained breakout above the upper trendline, currently at around $10,400. A break above the blue 100-day moving average at $10,550/600 would help to confirm a buy signal. I would suggest a quick test of the August high at $12,325 would follow. Further gains then target the July high at $13,200 and a break above the June high of $13,880 acts as the next significant buy signal.
Technical Analyst & Trader
The content of this article is the personal opinion of the author and not Intertrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.