Market Analysis

Mission Critical

Bitcoin again hit nearly $41,000 this weekend. By doing so it nearly reached the previous highs from January 8 just above $41,500. Whenever an asset hits the area of previous highs it is time to pay close attention for a decision will be made. New highs that sustain, news highs that fail, a double top or a lower high with deep reaching corrective consequences, or a pause that refreshes before further new highs are made down the road.

What do the charts suggest at this stage of this momentum play?

First off, the recent near vertical move has hit a zone of technical resistance, coinciding with the 3.618 fib:

The most recent drop has found support at the 2.618 fib. The confluence of support and resistance of both fibs suggest that the fibs have relevance.

As such $BTC needs to break through the 3.618 fib with conviction to tackle the next zone at $45220. Failure to do so risks a larger reversal that breaks below the 2.618 fib.

Historical behavior suggests that sustained new highs may be a mission critical task here in the next few hours and days here in February. Why?

Because the chart structure looks eerily similar to 2017/2018:

A monthly rejection candle and risk of a lower high the month following. In 2018 this was deadly as $BTC dropped from near $20,000 to below $4,000 in the months that followed.

The weekly chart highlights the similarity in the structure:

So new highs are key to invalidate the similarity in the structure. And be clear, if the structural takes on a similar path the 2017 highs could well be the next target lower. Failing holding that support the confluence interjection of key trend lines may ultimately be yield a target of around $6400 in 2022 . Perhaps good news for people who missed the current rally and want a better entry point. But that’s all theorem for now as nothing has broken and the bull case remains intact for now. But be mindful that confluence areas may end up becoming technical targets.

One other notable red flag. Note the building negative divergence as $BTC has approached the January 8 highs:

That could be problematic for even if $BTC does make new highs the negative divergence would be very pronounced.

So frankly $BTC buyers have a couple of key issues to watch in the days/weeks ahead.


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Categories: Market Analysis

4 replies »

  1. Always appreciate your hard work and honest view. However, I would appreciate that you would take a deep look into the fishy stuff that might be going on with Tether, just in the last 7 days, the allegedly “backed by real dollars” token supply has grown in the billions of dollars, and that combined with reckless amounts of leverage seems more than enough to move a market the size of the crypto one. Take care!

  2. Thank you Sven. Your analysis is very helpful. Kind of scary in that the stock market is also on a precarious perch. Bitcoin has had a tendency to show its hand on the weekend when the 9-5 traders are not in the market… Maybe Bitcoin is the canary in the coal mind of the broader market…

  3. I don’t understand bitcoin etc well enough to give an opinion but I’d be surprised if it didn’t correct 25 to 50% sometime this year so there should be a better time to buy than now with it at $43k.

    More confidently I think an SPX decline of 5 to 10% occurs before end February, US stocks are looking tired at these levels. What happens thereafter depends on what the decline triggers are and how they’re handled.

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