Bitcoin, a purely technical view

[Mercury]

I don't trade Cryptos, my bias on them, as posted in the past, is that they are a pure mania (not just a bubble).  I think the technology has merit in the search for non physical cash medium but until it become mainstream (i.e. adopted by sovereign nations and who knows maybe sometime in the future as a global currency - SciFi maybe...).  Thus I think the current crop will die out to be replaced by something more serious.

So much for that, now for a purely technical analysis view of Bitcoin.

The rocket to the top is obvious and in a 1-5 wave pattern with a massive spike and drop.  The journey down was just as dramatic until the market went horizontal in a long term consolidation pattern, which was broken to the downside in November after a few halfhearted attempts to revive the patient...

The recent rally is, technically, at this point, a retrace EWT3-4 of a 5 wave return to the start point and likely oblivion.  The rally is in A-B-C counter trend format and currently failing to break back through the key Resistance zone previously broken to the downside in November last year.  A strong bearish rejection at the resistance zone with A-B-C completion and Neg Mom Div and other oscillators oversold tells the tale for me.  Next stop, a retest of the previous support area and likely lower lows and so on and so on.

Take care...

[Guest Bean]

Kudos to you for a very detailed analysis, thanks.

I concur that Bitcoin is headed south, purely from the huge divergence on the daily chart.

[Mercury]

Hmm, seems someone thinks my purely technical view on bitcoin is "sad".  I guess whoever it is is either not a fan of technical analysis or wedded to a bitcoin resurgence (bias anyone?).  They didn't say why they thought it was sad so hard to know but anyway who care.  I wonder whether the same person will acknowledge their error if Bitcoin does collapse?  I doubt it...  While it is great to get some positive responses like @Bean supplied I would be very happy to hear opposing view, so long as this is based on an alternative view point and not just an diatribe against technical analysis, I mean what it the point in that..?   For me this is a purely  academic discussion as I do not, and never will, trade Cryptos, more than enough other opportunities in more stable markets out there for me.

Anyway the other reason for posting was as an alternative to the buy buy buy bias elsewhere.  Up to the reader to decide which way they wanna go, although forum discussion is beneficial so why not post your opinions?

[Mercury]

On a brief break from bank holiday family fun and just thought I would stir the pot with an updated Bitcoin post to punctuate the gowning hysteria (or I should say regrowing).  From a purely technical perspective, with no skin in the game and only 1 bias, that cryptos are a mania and will end as all mania's do, I see a significant inflection point coming up that may end the current bout of euphoria, just as pundits are making cases for bitcoin to regain old heights and go beyond.

I see a classic retrace move with NMD building and the Fib 38% resistance lies ahead.  Might even make 50% who knows?  All to risky for my blood, more stable markets with great pointage about for me.

[Guest PandaFace]

Whilst interesting, I’m curious if you’ve ever posted a trade direction which is anything other than short...?

i guess the challenge would be do you have any tech analysis which is bullish ?

Edited May 27, 2019 by PandaFace

[Mercury]

No sure what you are getting at @PandaFace, can you clarify?

[Mercury]

So looks to me like Bitcoin might have hit a wave 4 top.  Very strong wave C of an A-B-C ending in a classic ending diagonal formation (1-5 count within the formation); a Bearish pin bar turn, not far from the Fib 38% off the all time high on NMD with RSI and Stochastic over bough and turning back also.  Add to that a breakout of that ending diagonal formation today, in a fair show of Bearish strength and it all adds up to a significant period of Bearishness at a minimum or a full on final drop.

Remember this is a purely technical analysis without deep fundamentals knowledge and research that others claim.  I have no interest in trading this so no trading bias either.  The only bias I have is that I believe crypto to be a mania that will end in a train wreck.  Although I do believe the developments in the coding underpinning it will leave to something else arising out of the ashes to complete the journey to a cashless society that Governments have been push for some time now.  As is often the case with new technology, the originators and early adopters will not be the ones who benefit.  So I present this as an alternative to the hype.

 

[Mercury]

The days break continued and turned out to be a strong one, always good to see this after a turn and break of an ending diagonal as it signals a trend change rather than a retrace.  A continuation in the coming days will add to this.

I forgot to mention the price gap in the support zone.  Falls between the Fib 38% and 50%.  In any scenario I would expect this gap to be filled and probably exceeded so perhaps we will not see a pause on this market until 6000 or so?  Fib 50% is one of the most common retrace points, Fib 62% the most common one but I think that a break of the price gap support would be a bad omen for the hype Bulls (you know, the people yapping abut Bitcoin reaching $100,000 on the way up...). 

[Mercury]

UP early this morning because FX is at a tipping point but then I noticed Bitcoin is rapidly approaching a critical juncture based on my analysis.  Remember I don't trade Crypto and know little about it but am Bearish on Crypto as a bias, see my posts on @cryptotrader thread about what moves Bitcoin for details of the basis for that bias if interested.

Any on a purely technical assessment I have the following to offer:

• The market may have registered either a 1-5 or A-B-C down from the ATHs to December 2019 turn, which was then followed by a breakout of a Triangle formation to set up the current bull run.  The question for me is whether this is a counter trend rally (lash hurrah) or a trend change
• Price hit the Fib 62%, almost exactly, which when you think about Bitcoin volatility is pretty amazing, and then spiked back down in a strong rejection, very strong when you look at the Daily chart.  The last time the charts show that was at the ATH...
• There are 4 unclosed gaps below the turn point, that is a lot of pull.  You might expect 1 or maybe 2 breakaway gaps but 4?  Even though 1 was early in the previous rally to ATHs.  I was expecting some gap closure and the first one has just been closed.
• The Daily chart is very interesting, the move up looks like an A-B-C (pink) to me, although I could probably carve out a 1-3 so the current bearishness could be a wave 4 retrace.
• There has been 1 retrace rally, which would be a 1-2 of a massive bear move OR an A-B of a retrace to that possible wave 4 and then a final push up.
• The move up can be described as an expanding Triangle, a signal of over exuberance, as if that were needed on this market.
• Oscillators were over bought and now heading down, likely they would hit bottom, Stochastic at least, before any next phase rally.

The critical juncture for me is the confluence of a support zone and the lower line of that expanding triangle (8900-9300).  If the market is going to bounce into another final wave 5 rally it must surely do it here?  A drop through this zone brings the lower gaps into play.  If both are closed this thing is surely going down, down down.  Even if we get another rally phase, the fact that it is a wave 5 in all likelihood suggests this will not go too much beyond the previous ATH, or maybe a double top, before there is another retrace of significance.  The technicals at this point do not support the hype.  Price action is all.  Be careful out there in Crypto-land.

[Mercury]

Price stopped short of my lower trend line but does that mean the retrace is over?  It does not necessarily, unless and until we see a break through the June highs.  So far the whole move has an air of a complex retrace, which would indicate that the current rally is a deep wave B rather than a return to the motive wave.  Currently my technical assessment is pointing to the whole retrace being a 3-4 complex retrace, which when completed would set up a final wave 5 rally to end the while rally move.  This could already be in play but currently price is getting stopped at the Fib 76/78% zone, where the previous reaction rally to the fast drop was stopped.

 

[Mercury]

Haven't posted on this market in a while but have been tracking it through what I think could turn out to be a Flag/Pennant consolidation.  There are alas a number of scenarios to a retrace/consolidation end and turn, including a test of the support zone around the 7500 mark but before that a possible lower supporting trend line is currently in play , which would make this move a Pennant.  The whole move can be seen on the daily chart as a series of A-B-Cs, fairly classic for a consolidation phase of this nature.  At this point I cannot say whether this is a 3-4 retrace or a Flag/Pennant consolidation but on balance I think the set up favours the latter.  Either way a rally would be indicated.  The second price gap was closed recently, which was the minimum I was looking for.  At this point I don't think the final one will be as that would suggest a more bearish scenario (Not yet IMO).

The 1H chart shows the 2 trend line tests and rallies away.  Today's is on very strong PMD after what looks like a clean 1-5 wave C (blue) to complete the retrace (see daily chart) to the wave C (Pink).  A break above 8400 would seem to be needed to confirm the turn, although a short term 1-2 bearish retrace would also be usual before a stronger rally away.  After that I would be looking for a break of the upper pennant trend line. 

Looking at the weekly chart I see the whole move down off the ATHs as an A-B-C retrace that ended with that Triangle breakout.  The fast rally left behind several gaps, one of which is on the original rally, yet to be closed?  If that is all correct then the next rally should exceed the first one (i.e. a new ATH).  We could see a double top if no one gets over exuberant enough to break that resistance level.  However if the current Pennant set up holds, and the Pennant marks the halfway point in a rally, then a projection of this halfway points marks out a rally top at circa 21600 (could say 22000 round numbers with an exhaustion spike, which of course could spike well through this area and return back within it to begin the inevitable bear market that will follow.  For now though, if this is a turn and rally (and as always one has to guard against another leg down scenario at a minimum, if not a total capitulation to the Bears) then a lot of pointage is on offer for a very low exposure.

 

[Mercury]

Looks to me like we might be seeing a small 1-2 bearish retrace that is now in the process of ending and turning into a long term rally (relatively).  A break of the channel could be indicative and then I would be looking for a higher high than the recent top (my 1 blue).  I have no fundamentals view on this market other than the mania is not yet over.  I still believe all the crypto coins will fail leaving the blockchain technology to be developed in a next generation solution to the current currency crisis we are in, but that is off in future.

[Mercury]

Deeper retrace all the way to the Fib 88% (that is getting really common across many markets these days!) and now another test of the upper ST channel line.  A break of this line and a test of the overhead resistance zone will be instructive.  MY technical set up remains in play with a wave C (pink) already in at the lower consolidation triangle line and a short term 1-2 to set up a strong rally just done.  This is a rally that could, based purely on the technical chartist analytics, produce a phase end around about the 22,000 mark (not withstanding any exhaustion spiking).  I am Long for the first time on Bitcoin around the wave 2 (blue turn) for a low exposure trade.

 

[Mercury]

@TrendFollower, regarding your comments, it seems we now both align to a strong rally on bitcoin and that blockchain is here to stay in some form or the other.  I think I may have mentioned in the past that the Institute of Chartered Accountants in England & Wales is studying blockchain as a potentially new accounting method.  That is not something that happens everyday, we are still basically using the same method for accounting as devised by the Medici family...

My experience of new tech innovations is that early adopters get crushed and launching new things on the back of a "tear down the establishment and democratise the system" never lasts.  Eventually the system co opts and adapts the new things.  This is why I think Blockchain survives; eMoney becomes a reality but crypto coins die, at least this iteration.  Wouldn't it be nice if we could arrive at a situation where there was one single medium of transacting globally?  A bitcoin like system adopted by all the worlds governments might do the trick but that is far out in the future for me and will happen only after the system crashes and the political will to change it exists.  It is a phoenix scenario I foresee but for the phoenix to rise there has to be ashes.

I'm betting on ashes so am keeping cash and precious metals only, trading instead of investing.  Check out the interview with Jim Rodgers on Real Vision for his views, he is one of the Market Wizards you cited in the past I think.

[Mercury]

Bitcoin looks to be staging a breakout to the upside after a short term 1-2 retrace, which in turn was after a break of a short term channel (also a 1-2 retrace) and a bounce of a potential pennant lower line.

Need to see a break of the 8800 level and then a test of the upper pennant consolidation line after that.

[Mercury]

Nice breakout above the previous high (1 -blue - 4H chart) and strong rally towards the key 8800 resistance zone.  A break of this brings up the upper line of the pennant and a break of that confirms another leg up for me, which, if this is a pennant, should carry to new ATHs at least to around the 22000 mark.

The price action within the pennant is a classic EWT complex retrace (all the waves are in A-B-C form.  The probably final wave C concluded with a rejection at the lower Pennant line with PMD and then we saw a pair of 1-2 retraces, the first of which also turned on PMD (see previous post 1H chart).  What I was looking for was a strong and fast rally away through near term resistance, which is the classic price action for a wave 3, and that is what we appear to have seen.  You can never rule out an A-B-C relief rally at this point (i.e. another leg down), which s why a break of the 8800 and upper pennant line are so important to confirm the long term rally.

For now I am content to hold my Longs at the various turns stop protected at break even and see what happens next.  I am looking forward with extra interest to see how my first crypto trades do.

 

[Mercury]

Bitcoin looks to be in a short term consolidation with a break and retest of a 1H support/resistance zone.  Need to see a higher high and test and break of that 8800 level to get more confident of this move and ultimately a breakout of the pennant upper line is vital.

[Mercury]

Looks like that 8800 resistance level is key.  Price was rejected back down sharply off this.  At this point it looks likely we will see another leg down, another test of the lower Pennant line and likely an important line of support (circa 7400).

[Mercury]

Bitcoin continues to follow my road map.  The 8800 level remains a vital resistance zone but right now a more important zone of support is coming up.  This is an area I highlighted previously as a make or break as I feel a break lower through this area (circa 7200, the Fib 62% level, or between 7000-7400) would suggest a full breakdown in the market and possibly signaling the end is nigh.

The fundamentals could be construed as supporting this scenario if you believe the price action is more indicative of a highly speculative mania.  Certainly the % or IG traders Long suggests that everyone is eager for another massive rally, despite the technicals...  In order for crypto to supplant either Gold as a store of value or Fiat currency as a means of barter the speculation has to stop and cryptos like Bitcoin (well in fact for the ultimate vision to become reality there can be only one really) have to be essentially valueless (in the sense that it cannot be valued in USD).  Crypto has to resolve the split personality issue as well.  Is it a challenge to Gold or a challenge to Fiat?  Can it credibly be both?  If we get a major financial system crash in the near term I don't think any of the Cryptos will be sufficiently established to be either.  So that leaves speculation for now and such markets are not much different to other speculative financial markets so for now I am leaning towards a bounce off the bottom of the consolidation Triangle (maybe around the Fib 62%) and a final rally.

If that occurs then the projection for a rally end is about 18000, which is lower than the previous ATH as around the Fib 88.6% level.  However that unclosed gap still lurks around 6000...  Interestingly the 8800 level is setting up to align with a break of the upper Triangle line.  If we do see a bounce then the next big make or break will be a test of that resistance zone and a breakout of that to the upside should herald a big rally phase.

[Mercury]

So my fundamentals backdrop to the technical analysis, which is important as otherwise you are trading in a vacuum or microcosm and that means you don't really have a macro set up, is different to your @TrendFollower in that I think the big idea is blockchain not crypto currencies per se (or at least not the ones we currently have).  I know you also think Blockchain is the future so we just disagree in the future of the coins I think.  Blockchain is an opportunity to raise the financial system out of the dark ages of computing.  It would be a wonderful thing if we could get 1 medium of exchange (or barter) globally that everyone signed up to.  That could in the end be Bitcoin but more likely it will be a new medium that all governments sign up to and all consumers then use (i.e. the end of national currency).  This would eliminate FX trading, which only exists to perform an arbitrage function.  This would in turn give the medium an intrinsic value of zero, in terms of how we value currency today.  The value would simply be as a medium for barter and local pricing would not be effected (i.e. a bag of flour in India would not cost the same as a bag of flour in the UK in terms of the universal medium).  It would also eliminate the inefficiency of currency exchange and the associated risks.  More widely the ledger functionality of blockchain would revolutionise the custodial side of both banking/financial services and accounting such that one can see real time where ones assets are and transfer then 24/7/365 to anywhere in the world without the need to wash transactions through a bank account and the associated Fiat currency.  Such a scenario eliminates the USD as the global reserve currency, which addressed the issues many countries have with US financial policing (not just the likes of China and Russia BTW).  So no one has to set up a competing reserve currency, which would only serve to further complicate an already byzantine system.  Of course countries like China and Russia would have to want global cooperation rather than global technology and financial warfare...

So lots of exciting and ground breaking opportunity BUT in my experience and more importantly with the lessons of history several things happen repetitively with such revolutions as follows (not an exhaustive list by any stretch of the imagination):

• There is a wide eyed almost religious fervour among the proponents of the new movement such that they seek to wash away all of the old and replace with their new vision.  This never materialises how they envisage it and also the changes take a lot longer than imagined.  Here, typically, first mover advantage isn't really.
• There is a gold rush frenzy surrounding the revolution that results in multiple boom and bust scenarios that smack of ponzi schemes (and there will be some) but in the main are just gold rushes, the majority of which do not pay off.  So in this context, at best, 1 or 2 Cryptos survive. 
• There is a major event that causes the first revolution to implode clearing the way for the version 2.0 to succeed, the obvious analogy is the internet boom but you could also look at almost every political revolution too, plus the advent of electricity, railways and so on. 
• There needs to be a major event in the broader current state to allow the green shoots of the revolution to reemerge but legitimised as more mainstream and less anarchic.  Ultimately no one trusts a revolutionary (tell that to Jeremy Corbyn!  And Labour know it...)

This pattern is repeated over and over in history during many technological and political leaps.

So put simply, I see no reason why the same pattern would not be followed in this case.  Human nature is unchanged.  The major event that would be needed in my opinion is a complete meltdown in the existing financial system such that it becomes evident that it is moribund.  This paves the way for real change but humans seem incapable of evolving without sever growing pains and indeed requiring a major crisis catalyst or pain stimulus to effect real and sustainable change.  Just look at the inability of humanity to grasp the existential crisis currently postulated a climate change but in reality it is a matter of over population, which no one wants to talk about.

So within that macro backdrop I see Bitcoin, and other cryptos, as in the gold rush stage, as can be evidenced by the price action.  Within that context I can see another large rally phase before the implosion I cited above and if this occurs coincident with a wider financial systems meltdown then blockchain technology will probably emerge, together with a single global medium of exchange, to renew the trust in the system.  Alas there will be a lot of pain before we get there.  So my trading thesis, which is the same as yours it seems, is ride the waves if you can identify them and get in safely but, and here is where we probably diverge, don't think you are going to ride it to infinity and beyond, rather look for a decent exit for good profits.  Those caught in the gold rush fever will never agree with me on this.  C'est la vie, I don't need them to.

 

 

[Mercury]

So that was a bundle of Friday fun!  Bitcoin turned just short of the Fib 62% (or right on it if you draw it from the first retrace bottom (Purple 2 at 3350), which is a legitimate start point (I usually have several Fib options in play but tend to reflect the most conservative in these posts).  The turn was also just short of the lower pennant line, also fairly typical for the final wave to fall short as the market switches from one side to the other (bear to bull in this case).  The fast breakout was the place to go long, which I did for my second attempt to trade Bitcoin [the first ended with a small profit as I covered the previous rally once I saw it was likely to make another leg down].

So what next?  Having got long and now stop protected at BE I was looking for a break of that 8800 level I had previously identified as critical for bulls to break.  It didn't on Friday but boy did it today!  A break with a gap is an extremely strong directional indicator.  Additionally this gap breakout also took out the Pennant top line.  I think I can safely say that we are now in the next rally phase...

So what happens next?  Well the first question is whether or not the gap will be closed and/or the Pennant line will be retested.  Past history might suggest the gap will not be closed, which would make it a breakaway gap, again very bullish.  However we might see the Pennant line retested and a failure here would trigger the next phase of this rally.  Any Longs at this point would require a stop below the gap to be safe (about 600 points currently).

Assuming the Pennant is the correct way to interpret this retrace there there are 2 ways to read it as follows (i.e. it is not a massive 1-2 that suggests an end of rally 100,000+ type destination, I am sure there will be plenty calling these stratospheric levels so I'll leave it to them):

1. If the pennant covers the whole of the rally phase from the wave C (purple turn) and the Pennant marks the halfway point then by conventional charting techniques the project for a rally end is circa 18,000.  This would line up as a large scale A-B-C for the whole rally and suggest a lower high vs the ATH.  This would also set up a fast 1-5 bearish drop that would carry below the previous turn.
2. However if the pennant is marking only the wave 3 half way point then the 18,000 (or a little lower, actually around the Fib 88%) would be the end of a wave 3, at which point I would expect to see a retrace to wave 4 before a final rally phase that would push beyond the previous ATH.  Naturally I have no idea how far beyond, it could go a long way if the previous rally is anything to go by.

Scenario 1 is the more normal way of reading it but price action over during the next rally phase will hopefully shed more light.  What I can be confident of is that a rally from the current levels to circa 18,000 is almost a certainty (as much as you can say that about anything, just ask the All Blacks - rugby team - about certainties...).  Still on the balance of probabilities a Long trade here nets circa 9000 points if you can stomach the draw down risk of 600, seems like a decent risk reward ratio to me..! 

[Mercury]

Bitcoin breakout rally?  break higher that recent high at my 1 (blue) to confirm.

[Mercury]

After the fast breakout we are seeing some consolidation on Bitcoin, unsurprisingly.  The consolidation is currently in the form of a channel (or maybe a Flag?).  The lines are very strong, especially the supporting one with many touches.  Right now I favour a test of the bottom line again that will close the gap before rallying away hard, however it may fall short of the line this time and fail a test of the 8800 level I highlighted as a key resistance zone, now support.  Either way a breakout of the new overhead resistance zone (10,000) is the next big moment in the rally and a chance to go Long if you miss the turn.  Personally I am set to go Long a breakout of the 1H channel consolidation formation, albeit watchful for the kind of mini fakeout we are seeing today.  As has been mentioned elsewhere, the weekends often see a big move.  early Sunday is setting up as a time for a lower support test...  I'll be busy with life so have preset my stop in position.

 

[Mercury]

Slightly adjusted retrace channel (or possible Flag) that has seen a breakout in the past few hours.  I am still a bit concerned about a gap close but otherwise happy to be Long.  Still need to see a close above the next resistance zone (circa 10,000) to be really all in confident.

[Mercury]

Potential breakout to the upside on Bitcoin after a Fib 50% hit and previous rally gap close.  Need to see a break of the short term resistance at 8800-900 (again!) to get confident.

[Mercury]

Bitcoin has arrived a a crucial juncture from a purely technical point of view.  The breakout of the daily chart Pennant (if confirmed) is now being retested at the Fib 76/78% support zone.  A hold and fast rally away from this zone would get me interested in the bullish scenario but a confirmed break through support brings up a couple of alternatives being:

1. a retest and rally away from the lower consolidation channel line (weekly chart)
2. the end is nigh!

Let's see...

[dmedin]

9 minutes ago, Mercury said:

the end is nigh!

I wonder how useful those bitcoins will be when the apocalypse comes and the internet connection goes off. 

[Mercury]

Just now, dmedin said:

I wonder how useful those bitcoins will be when the apocalypse comes and the internet connection goes off. 

LoL! Yes but also Kindles, Smart phones, Social Media and, oh yes, retail trading...  Let's hope for better things.

[CharlotteIG]

Hey guys, we have a short clip on Bitcoin and Crypto index bear movement this month. Let me know what you would like our TV team to produce. They have a lot of time for your suggestions!

Click here for the video. 

 

If you don't have time to leave your suggestions on community you can contact Jeremy on Twitter @JeremyNaylor_IG. 

[Mercury]

Coming up on the weekly chart triangle line very fast.  Key break or hold point for me.