Our overall bearish bias remains intact. The weekend displayed a glimmer of hope with Bitcoin rallying to nearly $3800. But the quick sell off that ensued only served to strengthen the bearish case. The sell off lined up perfectly with a retest & rejection of both: the daily 21 EMA & 3-Day M-formation neckline.
Furthermore, this also confluences with the breakdown of the larger symmetrical triangle on Bitcoin. All signs point toward a retest of the $3250 area. But will that be the bottom? We discuss our opinions on this matter and the rest in this report.
Weekend Roller Coaster – Key Rejection of 21 EMA
It’s been a roller coaster of a weekend. Bitcoin price witnessed a sudden $200 move in both directions within a matter of hours.
Saturday started strong with Bitcoin making a quick move from the $3600 to $3775 – almost a $200 move to the upside. Could we have foreseen this move? Perhaps.
Bitcoin formed a smaller Symmetrical Triangle over the week. Eric Crown has emphasised that symmetrical triangles have an equal opportunity to break to either side. However, in a overall bearish trend – we tend to lean toward the downside.
“ Symmetrical Triangles have an equal opportunity to play out to either side
Surprisingly, Saturday saw Bitcoin break the smaller Symmetrical Triangle to the upside. The breakout hit the measured move perfectly. Although Eric himself leaned to the downside, he demonstrated his professional skills by responding to market action and trading the breakout perfectly.
Rollercoaster action: Upward break of the triangle and promptly sold into..
The break to the upside had many people feeling bullish about the markets once again. But the anticipated follow up simply failed to arrive.
Instead, sellers stepped in promptly and sold heavily into the $3775 level. The price quickly retreated to $3700 which resulted in a successful rejection of the daily 21EMA break. And this was key! (we’ll discuss why in the next sections)
Rejection of the 21-Ema on the daily.
Sunday showed a powerful response to the rejection of the 21 EMA. With rejuvenated confidence sellers were able to push the price of Bitcoin all the way down to $3500. A $200 move to the downside this time.
Interestingly enough, the rejected 21 EMA lined up with $3700. The $3700 was also the neckline for the 3-Day M-For-Murder formation (double top) that we also discussed in the previous post.
Incoming Murder? M-Formation Retest
As Krown would say: “M” stands for Murder!”. If you’re forming an M-like formation, you don’t want to break that neckline. And Bitcoin did just that when it closed a three-day candle under $3695. This neckline break has a high degree of playing out to the downside – especially on the higher time frames.
However, these formations may occasionally show a false breakout to trap people. A re-test of the neckline isn’t uncommon. But a rejection of the retest adds further probability of it playing out.
Notice the weekend rejection of the 21-EMA lined up beautifully with this neckline (as displayed in the image below). This is very likely to increase seller confidence, as they begin to target the measured move for this break.
“ Rejection of the neckline retest on the 3 Day
Double top (M-formation) break and retest of the neckline.
The measured move for this is typically the length between the neck and the top. This points to a move downward to around $3200 level area.
And this is where things get even more interesting. We’re already seeing confluence with the Daily 21 EMA rejection and the 3-Day M-Formation rejection. These also line up perfectly with Bitcoin’s Symmetrical Triangle formation and the 200 Simple Moving Average.
Confluence Galore.. Bitcoin's Symmetrical Triangle
BTC toiled away on a larger symmetrical triangle for around 2 weeks. We first discussed this in our previous post. The projected measured move on the triangle pointed us down to the $3200 level.
The triangle broke down on January 10th – with volume confirmation. What do we mean by volume confirmation? Simply that there was high enough volume on that break down, to justify our conviction in the break. Essentially, a lot of sellers stepped in for that move.
“ As long price lives below $3850, the symmetrical triangle is still in play
Break of the symmatrical triangle – pointing to $3250 range
The 200 MA's
The 200 Moving Average is typically a strong level that draws in a lot of attention. It gets even stronger on the higher time-frames such as the weekly chart. Currently, BTC has been ranging between the weekly 200 Simple Moving Average and the 200 Exponential Moving average.
After breaking the 200 Exponential on its first pass, Bitcoin went on to test the 200 Simple Moving Average which proved as strong support. Bitcoin then went on to test the 200 Exponential a few times and was rejected each time. This leads us to believe that a test of the 200 Simple Moving average is imminent.
Weekly 200 SMA (red) proving strong support. And 200 EMA (purple) proving resistance.
The 200 Simple Moving Average is currently sitting at the $3250 range which has perfect confluence with:
- M-formation breakdown
- Symmetrical Triangle breakdown
Both of the patterns above have a measured move to the $3250 range as well. The big question now, however, is:
“ Is $3250 the low of the market?
Many seem to believe that we have seen the lows. However, we strongly believe that the lows are not in just yet.
Volume....Where Art Thou?
Unlike most other cryptocurrencies, BTC has ample price cycle history to draw some clues from. One of the clues left behind is the Volume Signature during the 2014-2015 bear cycle.
Volume – while often misused – is one of the best ways to understand the overall crowd behaviour on a particular asset. Remember, we aren’t simply trading the indicators. Instead, we are trying to derive information about the mindset of the crowd.
“ Volume allows you to pinpoint the footprints left by the big market players
Let’s take a look at the low of the 2014-2015. BTC saw a devastating weekly price drop of 45%. This was accompanied with volume doubled that of the preceding weeks of price action. Below is the 2015 BTC weekly chart:
Volume indicating massive participation during the 2014-2015 bear cycle.
A closer look at the current volume profile indicates low participation. What does that mean? Essentially, we aren’t seeing the same anxious/exuberant selling & buying behaviour that we saw in 2014. Does that mean we are looking for the exact percentage drop & volume profile repeat once more? No, absolutely not.
Volume in the current conditions showing corrective behaviour.
However, the historic data does give us an idea of the behaviour we would like to see. If we see data that indicates a certain behaviour, then we may conclude that there are signs of a bottoming. As of now, however, we are not seeing any clues that point toward a bottom being in.
Do we believe that we will blow past the bottom right away? No – these things take time. In fact, Bitcoin is showing characteristics that are very reminiscent of it’s consolidation during the $6000 region. It may very well be that Bitcoin consolidates in a very similar way before finally break the $3k region.
That being said, there is one factor that may lead Bitcoin to it’s lows quicker than anticipated – Ethereum.
Ethereum H&S - Breaking It or Faking It?
As mentioned in the previous report, Ethereum does seem to be leading the market. The event-driven rally was followed up with the much expected dump in price. Typical event-driven-market-behaviour:
- Event is announced weeks in advance.
- Price begins to rally closer to event.
- Sell-off begins just before the event.
And this is precisely how Ethereum’s price action has played out over the past month. It rallied closer to the event date, and then the price began to reverse. Additionally, Ethereum seems to be putting together a bearish reversal pattern that points to possible new lows as well.
Typical event-driven market behaviour: Ethereum rallies & dumps.
We typically do not like to point out a Head & Shoulders pattern prematurely – especially since it’s one of the patterns that is most often acted upon far too early. However, Ethereum has all the underpinnings of a Head & Shoulders (H&S) pattern. Eric Crown agrees with the likelihood of Ethereum forming a reversal H&S pattern as well, stating:
- Correct shape
- Correct Volume characteristics
- Correct Price Action characteristics.
- Well defined neckline.
“ However, and this is a big “however”... We do not have the break of the neckline yet.
And until the neckline is broken with Volume Confirmation, we cannot call this a fully formed H&S. For now, we can say that Ethereum has all the makings of a Head & Shoulders – but it’s missing the final element: The neckline break
Ethereum shaping a H&S formation – but wait for the neckline break.
So what happens if we do get the neckline break? Well, this is where things get interesting (or scary, depending on your disposition) The measured move for this neckline break points to a price of approximately $70.
While this may surprise people, it’ll be prudent to remember the following points:
- Ethereum has already visited the $80 region
- If Bitcoin were to make new lows, it’s not far fetched to point Ethereum to new lows as well.
But again, we must emphasize that this thesis is only valid if the H&S neckline breaks. Ethereum is currently sitting at a strong support level. And If the neckline doesn’t break relatively soon, then we could possibly consider the H&S thesis invalidated
Weekly Bitcoin Price Prediction: Summary
Overall trend still remains bearish, and multiple signs point to Bitcoin visiting the $3250 region. While we do believe that Bitcoin will eventually make new lows, we don’t believe that we are likely to break the $3k region just yet. However, Ethereum is putting together a bearish reversal pattern that points Ethereum to new lows. Since Ethereum has been likely leading the market recently, we wonder if it could be the impetus for Bitcoin visiting new lows as well. That being said, all of this is predicated on Ethereum breaking it’s neckline – which it hasn’t done just yet.
Interesting times ahead of us. Interesting, indeed.