The positivity in the Bitcoin market leading up to the US Presidential election was warranted in our opinion, as is the consolidation the market is currently ranging within. While we are relatively neutral on the market for the time being, our long term bias remains bullish.
Following what ended up being a surprise Trump win in the U.S. elections last week, the price of Bitcoin continued its upward move that night, however, has been on a downward trajectory ever since. From a fundamental perspective, we believe much of this slide has to do with “buy the rumor, sell the news” traders taking profits from the past few weeks.
The rest is likely due to what some may perceive as a more responsible, and therefore, hawkish Fed - hence why gold and silver got slaughtered late last week. As far as the technicals go, the charts were also telling us that the rally was stretched and was due for a pullback, especially after a breakout failure of around $740 on election night, which created a pretty nasty double top. Now we sit in a consolidation range between $670–750, a critical area that could help determine where Bitcoin is headed over the next week or two.
We can see on the three-day chart below, that what initially looked like an ominous double top could also be viewed as a progressing Cup & Handle (C&H) formation given the bullish context of the market right now. A C&H is typically a continuation pattern in which the “handle” part retraces about 1/3 of the “cup’s” move prior to breaking out to higher levels. This indicates relatively minor downside from here, perhaps to test the upper trendline in the $650 region, but also implies this short-lived move lower will be a buying opportunity. Even if there is no final leg to the downside before a breakout, the formation already appears ready enough to move, so this would not come as a huge surprise either.
Moving on to momentum and volume, notice that Willy and RSI are finally coming down out of overbought territory, although they could still use some extra recharging before a reversal higher materializes. Additionally, MACD is heading back down to test the centerline following a bearish divergence on the $740 local high, the 200-period SMA is now firmly in a supportive uptrend, there are multiple levels of trendline support below the market, and the A/D line is still pressing higher despite a pause in the buying action for the time being. Finally, trading volumes remain anemic up at these levels and volume profile continues to paint very porous conditions all the way down to the $450 area. While we are not calling for a selloff anywhere near that substantial, this does illustrate the potential for medium term bear market. That said, we do not think fundamentals support this scenario, therefore we think it is highly unlikely.
All things considered, we are maintaining our medium to long term bullish inclinations due to both the fundamental and technical setups we are currently presented with. While there very well could be a slight extension of this pullback into the mid-$600’s prior to a possible resolution above the $745 and $780 resistance levels, we would be buyers of that move in order to position for an eventual breakout going into the new year. Even if these upper levels cannot hold over the near term, we think the intermediate term uptrend line, now sitting at around $550, will stop a downward acceleration. Again, we would be buyers of that move in the unlikely event that it comes to pass.
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