As usual with Bitcoin, the positive end of year seasonality capped off 2016 with a bullish bang which continued into the first few days of the new year. The euphoria was short-lived, however, seeing as though bears emerged en masse right near the US Dollar all-time highs (ATH’s) which promptly catalyzed a move back down into the triple digits. Near term panic then set in as rumors of Chinese government communications with local Bitcoin exchanges began to spread, in addition to poorly written FUD articles on MSM outlets, both of which were able to shake weak hands out of long positions as the market fell apart for about 24 hours straight. Now the price has recovered back above the $900 level which is a good sign considering the bears have not even been able to muster enough juice to retest the $750 - $760 breakout area from the last week of December, although it still remains a possibility.
With that in mind, let’s return to the three-day chart once again for a look at the medium to long term technicals as we begin 2017. First of all, we can see that immediately after a break above the rising wedge mentioned in our previous correspondence, the price accelerated to the upside eventually culminating in a blow off top around the $1140 level. This really should have come as no surprise, given how stretched momentum was while buy volume was waning. However, near the end of the move, it seemed like a mini-bubble was forming making it exceedingly difficult to remain objective on the market.
Speaking of momentum and volume, notice despite having come down out of overbought territory over the past few days, all three momentum oscillators still have room to run to the downside, while PPO has started flashing weak sell signals once again. As far as volume goes, the A/D line is holding up fairly well in the face of heavy selling recently, exchange volumes are still rather anemic despite decent sell volume on the “dump” candle, and volume profile remains thin below the market.
While it may appear at first glance as though there is more downside potential over the near term prior to another test of the ATH’s, we think it is more likely that price chops around between $800 - $1100 for at least a few weeks, if not months, before the market will be truly ready to make another move sustainably higher. The 200-period SMA is supportive of this hypothesis given it remains in a bullish uptrend, and the Pivot Zone and Resistance areas that are shown below should keep the price range bound for the foreseeable future or until the indicators are properly recharged.
If we turn out to be correct, then we would be using this consolidation phase as an opportunity to prepare for what very well could be an even more manic market once ATH’s are broken. If not, and the price decides to take another jaunt to the downside prior to testing the regional highs, then we will be watching the blue support box area shown above, as well as the volume profile notch around $500, as areas of interest for potential longs. Having said that, we think the likelihood of getting back down into $500 area again during this cycle remains low, so we will be keeping an eye on both the Pivot and Support zones going forward.
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