Market Analysis

Another Bitcoin in the Wall

Now that Bitcoin has hit the wall of previous highs perhaps time for another technical update.

And before you @ me accusing me of being just another naysayer or bear a quick refresher:

In August, when Bitcoin was trading at $11,181, I had outlined a technical case for Bitcoin to hit $17,000. This was the chart I had presented then which left room for a retest of the trend line (outlined in pink):

That retest subsequently took place:

And then Bitcoin never looked back and marched straight toward the technical target:

My general view on the reaching of technical targets: See the set up concluded then wait for the next technical signal.

Bitcoin promptly marched to further highs and retested the highs of 2017. The technical signal that emerged now is that of a negative divergence on the RSI:

What’s it mean? Perhaps nothing, perhaps everything for signals such as this can be meaningful if confirmed. After all the previous highs in 2017 came on a very similar RSI divergence before the complete reversal of the rally:

Should the divergence confirm here as well then Bitcoin is at risk of a sizable retrace move of the recent rally which in itself would not necessarily be bearish, but, dependent how it plays, could set up for an even larger rally down the road.

What would constitute a heathy retrace and correction? The fib levels outlined above offer a guidepost. One of the most common technical retrace points would be the .382 fib, in this case of particular interest as it currently offer perfect confluence with the 2019 highs at $13,790. Note also the secondary support line just beneath.

I should also note that following Bitcoin exceeding my $17,000 target the recent reversal stopped at exactly the $17,000 level, and bounced from that level meaning it is now support again confirming the previous technical target level. As such the corrective risk scenario outlined is by no means a given as long as the $17,000 area holds, which also means the current highs could be exceeded still, but the negative divergence continues to bear watching.

So Bitcoin is in a watch phase now with risk of a larger corrective scenario unfolding.

Why could the corrective scenario ultimately be bullish? For unlike the 2017 scenario support levels have formed over the past 2 years and they leave room for a different roadmap the could set up for significant new highs to come:

It’s somewhat unproductive to speculate too much about future scenarios without confirmation but I’m offering this potential cup building outlook nevertheless as how such a roadmpa could firm over the next few months if the corrective scenario unfolds.

When would the corrective move actually be bearish? In my view a sustained drop below the .618 fib for it risks invalidating the original breakout of 2020.

Bottomline: As Bitcoin has reached the previous highs of 2017 and it very much extended following its near vertical run since the original trend line back test a corrective move may actually be healthy and a retrace to the .382 fib for example may set up as a buying opportunity. But with any speculative asset of high volatility Bitcoin is subject to a lot of hype leading to overly risk on behavior which can end in tears as we saw in 2018.

Expressed in another way: From a technical perspective bitcoin bulls may want to welcome a correction to set up for a stronger base to build upon as opposed to a further vertical move higher from here subjecting Bitcoin to risking another uglier technical breakdown down the road. But that’s just my opinion 😉


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Categories: Market Analysis

9 replies »

  1. Nice Analysis Sven.. I have been playing with GBTC for a while now, and was wondering if we were due for correction..Not that a correction is a given, but nice to what levels to look for for a retrace or breakout.

  2. The stock market is about to crash and so will bitcoin with it. The dollar and gold will go up soon while bitcoin and equities head down.

  3. The stock indexes may be making new highs but the FANG stocks are already rolling over and about to drop. wait for it. any moment now.

  4. Not! I don’t think it’s going to happen Anonymous. People are pouring into hard assets because the writing is on the wall… inflation is looming and you’re dumb to stay in cash. Get into hard assets now, precious metals, cryptos, real estate, stock market, etc… anything other than cash. So, with that reasoning, hard assets will continue to appreciate. Well, they’re not really appreciating, it’s the dollar that will fall in value.

  5. “Munchkin” and G7 bedfellows said they will regulate the living daylights out of crypto soon enough, and then Uncle Powell will introduce the central bank digital currency as a govt replacement.

    In other news, American Debt-n-Wage Slaves will be forced to take the corporate oligarchy mandated vaccine or face getting fired, lose their private corporate funded healthcare, and go bankrutpt if the get sick during the Dark Winter. Throw in some further forced prison and nursing home vaccine testing, and we should all know if these vaccines are safe in a few years so then the Davos elites can safely get inoculated.

    Per CNBC:

    Companies are considering compulsory Covid vaccination requirements as a condition of employment.

    “Under the law, an employer can force an employee to get vaccinated, and if they don’t, fire them,” said Rogge Dunn, a Dallas labor and employment attorney.

  6. $1 trillion of bonds have yields turned negative this week so 27% of the world’s investment-grade debt is now sub-zero according to Bloomberg. So when can us plebs get our negative rate loans?

    Best Recession EVER!

  7. White House threatens to fire FDA chief unless Pfizer Covid vaccine OKed Friday: Reports CNBC

    Trust your low IQ narcissist leader, all is safe in billionaire land! Where do I sign up for human testing?

  8. Sounds like most are using cash to buy everything. Bitcoin is going down with the rest of the stock market along with real estate. I’m holding the dollar, TLT, gold and silver.

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