Bitcoin, a purely technical view

[Mercury]

Early days but Bitcoin appears to be motoring after a V-Bottom turn with a bounce off the Weekly/Daily supporting trend lines.  Looks like a retest of the upper retrace/consolidation line (Triangle) is on the cards.

 

[Mercury]

Looks like a potential Head & Shoulders trend change with PMD at the Head turn and with a 1-2 bullish retrace at the left shoulder followed by a neckline break and now a potential upper channel (consolidation) breakout.  If correct this would be a significantly bullish development.

 

[Mercury]

Possible breakout retest fail occurring at or around both the neckline and channel levels.  Price is peeping out over an important support/resistance level.  We could still get another leg down on this but Bitcoin does have a habit of breaking out fast...

The move down can be labeled as an A-B-C (1-2) retrace, which is what I would expect in trend change scenario after a head & shoulders neckline break out.  There is PMD on the 1H chart at the recent turn.

Overall I remain bullish on the breakout and trend change back into a longer term rally phase.

[Mercury]

Bitcoin might well be looking to retest that neckline and/or the weekly chart channel line.  Fib 62% (7470) looks favourite to a bullish turn if we do get a bearish move on this.

[Mercury]

Another market getting interesting now is Bitcoin.  We didn't get a second test of the weekly channel and neckline as price turned up and posted a new short term high.  There are a couple of important resistance levels to clear (my red lines at circa 8,600 & 10,000) by which time the rally should be well on its way after that classic breakout and failed retest set up.  If we get all that then I would expect a break of the previous high at 14,000 at a minimum and after that who knows...

[Mercury]

A buy the dip moment has passed on Bitcoin and with a break to a higher high in prog we may now see a test of the critical 10,000 resistance level.

[Mercury]

Watch out Bitcoiners!  Quite a bit of resistance at 9000 at present with a possible 1-5 up completed and NMD on the 1H chart.  We could see a bit of retrace price action down here with 8500 and 8300 in focus for a turn back up for another, stronger, assault on 9000.  The Daily still looks LT bullish but a break of 9000 with a daily close above is needed for a follow on.

[Mercury]

Weekend price action on Bitcoin is suggestive of a wave 1 turn that may produce a wave 2 retest of the H&S neckline or channel line.  Thoughts of a test of the key resistance level of 10,000 ,may be suspended until this retest occurs and produces a strong rally.

[Mercury]

Bitcoin is really sketching out almost perfectly from a technical analysis perspective:

• We have had a turn at the bottom of a narrowing channel (or consolidation Triangle)
• We have had a head & shoulders pattern through this bottom, which alas did not quite close a price gap (this is my only pause for concern on a major rally phase being in play)
• There was strong PMD at the Head bottom.
• We have has a H&S neckline breakout and a coincident weekly channel breakout and a short term failed retest of these then a rally away.
• We have has a second EWT 1-2 (blue) (first is noted as pink), which hit the Fib 38% and then broke resistance last night.  This is very bullish.
• Right now we are looking at a smaller 1-2 (1H chart) however there is always the possibility that the recent breakout zone will be retested before the next assault on 10,000, clearly a point of important resistance on the charts.

[Mercury]

There are 2 technical ways to look at bitcoin price action now.  The first is a series of buy the dip patterns that ought to push price back above 10,000 and on to test 14,000 in short order, as laid out in my previous post.  The second is that this is the end of this particular bullish phase and a deep retrace is on the cards before that bull market takes over again.  I don't see a long term bearish scenario at this juncture.

The technical set up for scenario 2 is like this:

• We have has a breakout of both a strong channel and H&S neckline at the turn of the year
• The rally has been strong and fairly relentlessly bullish with a few pull backs but no significant retrace
• The form of the rally can be described as a 1-5 (motive - i.e. direction of the longer term trend)
• After a 1-5 motive wave we usually get an A-B-C counter trend move
• There is NMD on daily and 1H charts at the recent turn at resistance zone.  The move back down was sharp and looking like a rejection of the resistance test.

It is at least 50/50 now and if we get a close below today than some form or counter trend move can be anticipated.  It could retrace a lot further than people think, most being now bullish again as a result of the breakout and rally I am guessing.  A firm break and close above the resistance zone would be needed to revert to scenario 1.

[Mercury]

SO Cryptos are breaking out and next stop the moon!  Well maybe there is some significant upside potential now that the large consolidation Triangle has indeed been broken with a credible Head & Shoulders pattern at the turn (plus PMD, plus credible A-B-C counter trend retrace EWT labeling).  We also have a coincident H&S neckline break and a fast rally away.  So far so good.  But markets do not move in straight lines and the last big rally surely had a huge retrace bear move.  On the current rally price was stopped at 10,500, a credible resistance zone according to the chart price action after a 1-5 wave form.  The turn occurred on NMD with RSI and Stochastic coming out of over bought and now price is hovering just above a bullish channel lower line.

My take on this is that a counter trend bearish phase is underway that might even get back down to retest the neckline or thereabouts.  If we do see a channel breakout then we can perhaps at least look forward to a Fib 50% test, coincident with a one of significant support.  Note counter trend moves tend to go in either a simple A-B-C form or a much more complex form with lots of whipsaw price action so they can be treacherous to trade.  It is hard to hold for the compete move from here but targeting an initial wave A that might make, say, the Fib 38% might work, after than a sell the rally off the wave B top might be on but this is all speculation at this stage, need to see the moves price action develop.  The big opportunity here is to catch the turn back Long after the retrace is done.

My personal approach is to Short the break of the lower channel and seek the wave A turn to take profits, leave it alone until I see that wave B and then see of there is another Short, but this may prove tricky and if I miss it OK but then wait patiently for the next rally wave to present itself.  Such a wave would be a wave 3, which is absolutely the one you want to catch as it will run and run.  This is where I would turn trend follower and hold and buy the dips!

Should be an interesting few months perhaps.  My view on Bitcoin is that it is a risk on asset not a risk off one.  It is currently a speculation on the future but that future has not yet arrived and IMO will not until there is a major financial system catastrophe (including a rampant USD), which I believe is on the cards.  If my view on Bitcoin being a risk on asset is right then we could be coming into a risk off period as Bitcoin falls.  Stocks are at ATHs and maybe showing a reluctance to jump further and that despite SP500 earnings beating expectations so far (70 odd % of the way through reporting) and US economic data seemingly pulling up...  Or maybe that impetus is simply coming t an end.  Gold and Silver seem to be catching a bid and USD is also strong.  Who knows, maybe the big rally on Bitcoin would coincide with a big turn down elsewhere as the speculation is fueled by the fear of that big catastrophe and Bitcoin being the future...

For now, for trading, purely on a technical assessment, the lift off seems to be suspended. 

[Mercury]

Updated chart from yesterday.  The original supporting trend line still holds but is more of a 4H/1H chart line.  There is a better lower channel line on the daily chart and price is just testing this now.

 

[Mercury]

So a strong bounce off the lower channel line but then an equally strong bounce off the 4H chart trend line and then a break of the daily channel line to the downside in some style.  I would expect this to resume a strong bear phase maybe even to retest the neckline.