Bitcoin Price Analysis: Supply Still Outweighing Demand as Prices Dip

Over the last two weeks, bitcoin saw its longest streak of red days since 2014. The volume was modest and expansive on the drop as the price managed to lose 25% in value in just 10 days. At the time of this article, the market is testing the strength of the support near the bottom of the macro trading range (TR):

Figure 1: BTC-USD, 1-Day Candles, Macro Trading Range

As noted in several previous articles, this is a very important stronghold for the bulls. If support does not manage to hold this support, the market will undoubtedly search lower values in an attempt to garner significant market demand.

Previously, I discussed the possibility of the recent move to $8,400 as a so-called Sign of Strength (SoS). Typically, a SoS would like to see an approximate 50% retracement for it to be considered a healthy, bullish move. However, in our case, we saw a 100% retracement.

Not only did the market move retrace 100%, but the volume and price spread that accompanied the move back to the bottom of the TR was on steady volume and wide candle spread. Steady volume paired with wide candle spread is a sign that the market is lacking demand and that the sellers are overwhelmingly dominating the market:

Figure 2: BTC-USD, 12-Hour Candles, Selling Pressure

The chart above shows just how dominant the sellers were on this latest shove. You see next to no buyers stepping in as the volume and price spread continue to expand on its path to the local bottom.

This movement is not in line with what we would expect to accompany a SoS off the bottom of TR. This is an inherent sign of weakness in the market and something that shouldn’t be taken lightly. Granted, in the grand scheme of the market, the whole volume profile is still  consolidating:

Figure 3: BTC-USD, 3-Day Candles, Volume Consolidation

Although the overall volume trend is consolidating, it is pretty clear that sell pressure is still very present relative to the recent bullish rally. This can be a sign that we will, indeed, be testing lower values for support if the current price level does not hold.

The next major level of support exists around the green box shown in the chart above — the 78% retracement of the entire bull market. The consequence of having such a strong, parabolic run up in the previous bull market is that there were no pit stops to establish support for quite a ways below our current price level.

I expect, if the current support does not hold, the move will be violent and will occur in a very short period of time. Granted, this is all up in the air, but once again we find ourselves at the mercy of the TR support in the lower $6K values.

Summary:

1. The market is currently showing signs that supply is still present and demand is lacking much momentum to move the price.
2. Immediately after having a very strong couple weeks of buying, the market immediately retraced 100% of its move in just 10 days. The retracement failed to see any demand step in as the price dropped 25%.
3. The market is, once again, testing the support of the TR bottom.
4. If the TR support does not hold, we can expect to see the price quickly test the mid $4k range as it attempts to find support.

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