After triggering several key levels yesterday, $BTC dropped almost 10% within 24 hours.
Although this move looks very violent at first glance, it has stopped (for now) in a territory which can be considered support, leaving room for a potential bullish reversal taking place still, although momentum clearly is on the side of the bears. Let us examine what happened, how much damage has been done and what it might mean for the short- to medium-term future.
Above: Violent move on significant volume, breaking the previous Low, Bearish Momentum initiated.
With the break below the $7k Low $BTC also went through the lower triangle trendline. The significant volume on the breakout bar indicates the signal is true, so I would be very cautious trading these days. However, whether or not the triangle has been broken to the downside requires more confirmation, a case which I will outline further below.
The longer term situation in $BTC is as follows:
Lower Highs meeting Lower Lows which defines a stable downtrend, interrupted by the first Higher Low around $6425, which potentially indicates a Major Trend Reversal, if it can be confirmed with a Higher High. In a nutshell, we are currently in a bear trend, with the potentiality of reversing the trend, if bulls can follow up with both strength and significant volume.
Such upside scenario can only be invalidated by taking out $6425 (Higher Low) which would make this bottom invalid for further analysis. Instead, with a break of the $6425 Low $BTC would return to the pattern Lower Highs, Lower Lows aka downtrend.
As discussed in prior posts and tweets I expected a very strong impulsive move in either direction. Although we dropped around 10% within a day, it was not as violent as I anticipated, which lets me doubt the reality of this bear breakout, or at least requires more confirmation. What i actually expected was a cascade in either direction as Stop-levels of both bears and bulls are very close to each other, as indicated below:
Instead of triggering those bull stops in a cascade while printing a huge bearish candle on massive volume, bulls managed to stop this move before $6425 could be triggered, which indicates there is still solid support at this level attempting to protect that $6425 Low.
Of course quite frankly, this can still happen once we take out the Low of this daily breakout bar at $6618 and slide through $6425 thereafter, but the fact that it did not happen straight away shows me the last word has not yet been spoken yet.
The Bearish Case
The (potential) bearish case has been discussed in my last article more in-depth.
As the analysis is still valid, I leave the link here:
In the conclusion of that article I stated that:
“Any Close below $7260 might trigger a cascade of stop orders fueling the leg down, which would put pressure on bulls to defend $6400 Low which is a crucial key level to hold in order to avoid a prolonged bear market.”
In short, we did trigger the cascade somewhat, and broke the $7260 Low but did not manage to slide through the $6425 Low, which is the crucial levels for bulls to defend. The bulls are still in the game as the cascade has not been fully activated. However for the moment being, bearish momentum prevails, resulting in likely further attempts to drive the price down below this important level.
Quite simply, a close below indicated key level $6425 (Previous Higher Low, protected by bulls) would increase the risk of seeing the cascade unfold in the coming days, triggering more stops below $6000 and lower.
The Bullish Case
If we change the perspective to the bulls it becomes apparent that there is solid support at these key levels which first must be broken in order to confirm the current bearish momentum.
Currently residing on a level that is considered to be breakout support of several previous bottoms, bulls might try and regain control over the price around here, especially by protecting the $6425 Low (where their stops are being placed) until selling has exhausted. Needless to say that this would end up in a massive bear trap, but for this possibility the bulls need a close above last High at $7756 which is quite far from today’s perspective. Although this remains a possibility it needs to be added that generating a $1000 upmove while bearish momentum is still active requires a lot of both buyers and volume.
Given $BTC is trading at it’s 2018 Lows it can be well considered to be a bargain at these prices, so IF bull momentum can be generated before taking out $6425 Low, it could potentially make the recent downmove a bear trap, resulting in a buying spree, thereby fooling as many traders as possible.
Both cases are still valid, although pressure clearly is on the bulls. With an impulsive bearish move with significant volume bears managed to regain control over the market as of now. As we are still in bullish breakout point support, any bullish signal generated on higher timeframes might potentially be viewed as a bargain buying opportunity.
On the other side, any close below $6425 and finally $6000 puts further pressure on the bulls and I am not confident that prices can hold this altitude if bull are not able to defend their stops.
I remain neutral to slightly bullish until $6425 Low has been taking out as a confirmed signal, as the chance of a reversal is still given, as we are trading in a range of double breakout point support.
I stated yesterday that $1000 would be a consequence of the $7000 takeout, but I am no longer confident that this might be the case without further evidence by means of fresh Lower Lows and definitely $6425 takeout.
Logically, the triangle has been attempted to break down, but needs further confirmation in order to outrule a potential bear trap and/or capitulative move. As long as we do not confirm this bearish impulsion, bulls still have the opportunity to drive up the price without too much damage done.
Intuitively, I do not trust this move and expect a bullish countermove in the coming hours/days, which can be used for further assessment.
I do not recommend to trade in these times, I personally will just sit back, relax and observe what is going on. Wish you all the best, and hope you survived the emotional rollercoaster yesterday. I will keep updating in the coming days when more information is available. For now, have a great day, evening, time, wherever you are.