It’s been a while since I’ve written about Bitcoin and for good reason: Bitcoin was stuck in a consolidation range for 3 months and the question was whether BTC could break out of a larger technical pattern we’ve been tracking which it finally did last week and this breakout is notable for it ay have further price implications.
Indeed the breakout, following the consolidation and surrounding technical construct, may point toward a technical target of 17,000.
Let’s review briefly.
This is the chart I’ve been tracking since May on Twitter:
Looks like $BTC will make a very important decision in 2020.
The standard rally from April into May has taken place.
A break in either direction of this very large tightening pattern will result in a very large price move.
Current action appears to favor bulls.#unconfirmed pic.twitter.com/x7kksMOGau
— Sven Henrich (@NorthmanTrader) May 12, 2020
I pointed to a tightening pattern that suggested a key decision in the price action in 2020.
And we followed the consolidation period in the thread for months until the breakout in late July:
— Sven Henrich (@NorthmanTrader) July 27, 2020
So now that we have the breakout what now?
Firstly note that a breakout is bullish if it can be successfully defended, meaning as long as $BTC can remain above the breakout trend line it has significant technical room higher:
Also note $BTC is showing some retracement action and has room lower for a potential retest of the trend line.
But note that inside the larger wedge consolidation a potentially much more bullish pattern has emerged, that of a potential inverse which would point to near 17,000:
This pattern would suggest a move back toward the 2018 highs in due time.
When would this pattern be invalidated? If BTC fails to defend the breakout meaning a fall below the inverse neckline and the trend line (see pink circle).
One thing about patterns is they signal probability, but one also must know when patterns are invalidated and where one may want to place stops.
As it stands $BTC has rallied 37% since the structure was outlined in May. Now it has to prove the breakout and the potential inverse pattern and, if it does, it’s on its way to $17,000.
On a final and separate note though: I’ve heard a lot of talk in the past couple of years of how BTC is a hedge against fiat currency by central banks. I can’t say that it isn’t, but I will point out that to my eye at the moment it looks like BTC is more in line in tracking the overall market:
Who’s leading whom here? Or are both simply an expression of speculative sentiment in markets driven by unprecedented central bank liquidity? Not for me to decide. But to the extent that BTC and markets continue to track somewhat in parallel then a bullish outlook for BTC would suggest further bullish price action in $SPX.
A true test for BTC as a hedge against fiat currency destruction in my view would be to see both decoupling from each other. For example: A drop in equities while BTC races toward the 17K technical target. That might convince to support the argument. As it stands BTC dropped along with everything else during the February/March 2020 Covid crash so the hedge argument remains unproven from my perch. Indeed if markets were to drop and BTC along with it again invalidating the inverse pattern and breakout may indeed put the hedge argument to bed. We’ll likely know more on that front in the next 3 months or so.
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Categories: Market Analysis