Bitcoin Price Analysis: New Low on Low Volume Breeds Potential Bullish Set-up

Bitcoin sits precariously perched at the bottom of the annual market low and many bitcoin investors aren’t sure what to make of it. Although the market seems to be continuing its drift to new lows with greater and greater ease, there are a couple of bullish signals worth considering while the market continues to consolidate: 

Figure 1: BTC-USD, Daily Candles, New Market Low

On Friday, June 29, 2018, for the first time this year, the daily candles closed below the annual low of $6,000s. However, something to note about this bearish close is the lack of volume and lack of momentum on the follow through. Overall, the volume is continuing to consolidate and it appears to be within the realm of an accumulation trading range (TR).  

Typically, we would expect to see a stronger round of selling taking place with such a bearish close. But that isn’t what we see at all — we are actually seeing contracting volume as the market continues to push lower. This gives the bulls hope for a potential market move called a “spring”. A spring can occur in with an accumulation period and is often preceded by a “creek”. A creek is characterized by meandering, downward price action which decreases in volume as the market drifts effortlessly downward. On the tail-end of a creek, there is often a spring.  

While there are many types of springs, the current one we are specifically considering has a low volume that pushes the price low, but which sees very little follow through and shows little signs of excess floating supply in the market. The market’s trend is most certainly down, but this spring scenario is still a possibility that we should consider.

If we manage to push to a new low and realize a continuation of the downtrend, we can expect to see a fairly violent move downward as we reach for support. The consequence of a parabolic move is that there are no proper support levels established because the price is rising so rapidly. If we continue downward, the move is likely to take us to the 78% macro fibonacci retracement values shown below:

Figure 2: BTC-USD, Daily Candles, 78% Fib Retracement

A break below current values on strong volume would undoubtedly shakeout the rest of the cryptomarket. Many coins are already experiencing all-time lows, and this would cause them to explore deeper and deeper lows as the market struggles to find a temporary bottom. For me, this is a no-trade-zone, as there are both bullish and bearish arguments. Since the market is trending downward, I’m inclined to argue in favor of the bears.  

However, as the market progresses, I think the arguments are beginning to stack up for the bulls, as well. The spring scenario mentioned above, in my opinion, is not a point of action but is something traders/investors should consider as a point of interest — in other words, it has not been confirmed. Until the market breaks from this consolidation, we will have to just be flexible with our opinions and process the information as it comes in.

Friday evening saw a strong round of buying and has many bullish investors already calling for a bottom. Friday’s daily candle managed to close a bullish engulfing candle on relatively high volume. Although this is certainly a bullish event, we have yet to break out of the downtrend or close a daily candle back inside the macro TR. If we can manage to break the downtrend and close back inside the TR, the case for the macro spring will get one more check in its column.

Figure 3: BTC-USD, Daily Candles, Bullish Engulfing Candle

Summary:

1. A potential spring in a macro accumulation trading range is developing on the tail end of a sustained, multi-week creek. It should be noted that this is just a set-up and not something that is confirmed or actionable.
2. If we manage to push new lows, we can expect to see a violent move downwards as we scramble to find support and look for demand to enter the market.
3. A strong level of support lies on the 78% macro fibonacci retracement set in the mid $4500s.