This week, the price of bitcoin behaved as expected on last week’s analysis – “A correction with a chance of more upside sums it up”
More upside was exciting, flatlining at $ 430 and thereafter blowing past it, all the way up to $ 504. It was pretty exciting to witness the market in full euphoria. We have not observed these price levels since August of 2014.
A correction was overdue, after a relentless parabolic rise up. Typically, run ups are followed by corrections and consolidations, naturally from exhaustion. They tend to occur at key levels – major supports, resistances and intersection of moving average lines. The current market correction came in after encountering resistance from 2-year daily moving average sitting above price at $ 425 as seen on this 3 day chart
In hindsight now, $ 502 was a major top, clear from classic candlestick patterns indicating tops on multiple time frames – a bearish doji, shooting star and bearish engulfing pattern on the – 3 day, 6h and 12 h. As of writing this, price sits just below $ 300 – ranging sideways between $ 295 and $ 320. This correction has been painful for plenty of traders caught offside.
Moving average lines on the weekly chart are yet to change trend; price is at the cusp of breaking out of a year long trading range below – 30, 50,100 and 200 EMA. It is not yet convincing, and more upside will be required to affirmatively break from a 2 year long bear trend. 1, 2, 4 and 5 are similar failed attempts at turning the trend. Watch 5 for either a similar pattern or, a break from the bear trend.
30 50 day and 100 200 day Simple moving average lines sit below and above price trading range – forming an upper and lower resistance. Even here, despite the parabolic rise to $ 500, a break from the bear trend is unconvincing. Caution is advised taking long positions, as upside is limited by upper 200MA resistance.
Final Silk Road Bitcoin Auction Registers Low Turnout – Coindesk
The US Marshals (USMS) held its final auction of confiscated bitcoins from the Silk Road bust, to a low turnout of – 11 bidders – the lowest since December 2014. New York Based bitcoin exchange itBit revealed it had secured 5 auction blocks – about 10,000 BTC.
Bobby Cho, Director of Trading at itBit, said to Coindesk
“We confirm that itBit’s auction bid, organized on behalf of a syndicate of our exchange and OTC trading clients, won five blocks in the final USMS auction.”
The timing of price run up coincided with USMS auction, eerily resembling the previous 3 auctions when price went up just before the auctions and thereafter declined gradually. It has been labelled ‘pre-auction casual pump.’ Here is a chart mapping the auctions and price movement
Bitcoin’s Rally Fades, Crashes back to Earth – Bloomberg
I find mainstream media amusing, especially how they will grab at anything for a clickbait headline. This week, Bloomberg ran with this title, the complete opposite of last week’s title – Bitcoin is Suddenly Surging Again.
This is a lesson to steer clear of mainstream financial news, at least not as a source of your trading fodder. Fundamentally, nothing has changed between last week and this week, despite the wild up and down swing in price, even by their own admission.
“Searching for reasons behind bitcoin’s price movements often feels like an exercise in futility”
The lesson from this article is how MSM (mainstream media) will react when bitcoin finally becomes mainstream, taking its rightful place next to gold and precious metals, and shoots up to new all time unprecedented highs.
BITCOIN WEEKLY PRICE FORECAST
This week, I am neutral to bullish. The fall from $ 504 is looking for a bottom, and so far, it has yet to find one. I expect support at $ 300 zone (upto $ 280) to hold as a bottom, for a rebound back up and attempt to reinvigorate bullish sentiment. I expect limited upside on such a move, possibly as far up as $ 400.
A less probable alternative, is a series of impulsive moves all the way down to $ 200 – without a rebound.
The 2 red arrows in the chart above indicate the 2 possible scenarios. Eventually, both result in a similar bearish forecast.
“It’s difficult to remain patient when prices rise like this which creates lots of excitement and generates attention. I believe this is an important time to remain disciplined and plan your entries on pull backs. The best buying opportunity may still be coming…”