Last week Bitcoin exhibited relative strength in the marketplace when compared to precious metals, adding to the fundamental bull case, however the near term technicals are saying that perhaps the market is not yet ready for a breakout move higher. While our bias remains generally bullish for the time being, we realize the market could stay around for awhile first.
Last week we saw a somewhat surprising continuation of the near term rally up towards the $755 level where sellers began to move in to put a cap on price. Following that local top, price began to show signs of diminishing momentum on some bearish formations, which led to the sell-off we saw yesterday morning in the markets. Many traders are attributing this most recent pullback solely to the drama between Core and Unlimited, which could very well have been a catalyst for the move, however the technicals were telegraphing the need for such a move going back to Thursday of last week. Now that near term support has been found in the $710 range, the market is forming some rather unorthodox patterns which indicates to us that there remains some indecision at these prices. While we continue to think the downside risks are relatively limited, we would not be surprised to see slightly lower prices prior to a test of the highs, mainly due to the near term technicals.
Speaking of technical conditions, we return to the daily chart today for a closer look at the medium term outlook, going into what is a holiday shortened week for U.S. players - Thanksgiving. First of all, we can see that price is still in the upper supply area, despite spiking out of it briefly yesterday, and this has created, what could be considered, a rising wedge formation. This is typically a bearish pattern that results in a breakdown below the lower trendline, as happened on the sell-off over this past weekend, which is given even more credence when combined with still overbought and bearishly divergent momentum indicators. Additionally, price remains outside of the volume profile value area, the point of control (PoC) is still well below the market and trading volumes need to pick up on USD exchanges before a breakout.
On the other hand, the shorter term EMA’s are still stacking towards the upside, the 200 SMA is now decidedly bullish, the A/D line continues to trend higher and we have a series of higher lows working, so the bulls do remain in control for now. Having said that, even within the context of these bullish indications, there is still room to move lower prior to retesting the $755 and $778 highs, meaning price could easily move down to $650 while maintaining a longer term bullish bias. Multiple areas of both strong support and strong resistance above and below the market have us thinking that perhaps a sideways range extension is possible over the course of this unorthodox trading week, which would then set the stage for the year end fireworks we have been expecting over the past few months.
Generally speaking not all that much has changed in terms of our forecast, despite the move lower we saw yesterday morning. Long term, things remain intact in terms of the bull market, which implies that we think there is significantly more upside than downside potential going into 2017, however we also acknowledge the fact that the technicals could use a more substantial recharge over the next week or two, at least prior to a breakout above the aforementioned resistance levels. Tldr: patience and discipline remain virtues as the market ponders where to head next.
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