Last week Bitcoin continued its strong autumn rally as price broke above the $755 local high on the way to testing the June high of $778. While the bulls were unable to break above that key level on the first try, unsurprisingly, we think there will be another opportunity following the current pullback and consolidation.
While many U.S. traders were spending time with family during the Thanksgiving holidays over the past few weeks, Bitcoin market makers were hard at work pushing the price to the upside in order to test key resistance levels. Following a breakout above the near-term local highs around $755 late last week, the bulls carried the price up to the even more critical $778 regional high level before getting rejected by sellers. Now the market is pulling back below $750 on what we believe to be profit taking by shorter-term players, a move which should help refresh the technicals in order to give the bulls a better shot at taking out the heavy medium-term resistance in the $770 – 780 region. Although this consolidative pullback may be unwelcome by those who are overextended on the long side, we welcome it as a chance to jump back into a bull market at key near-term support.
To put the recent moves into context and prepare for what might be coming down the pike as we get closer to the new year, we take a look at the three-day chart once again as it remains a reliable roadmap for the medium to long-term technicals. We can see that price remains in, what appears to still be, an ascending triangle formation and could be forming an even larger cup and handle pattern off the June highs, both of which indicate the possibility of substantially higher prices in the not too distant future. Also, note that the 200-period SMA is now firmly in an uptrend, the A/D line continues to move higher thus confirming the medium-term bull market, and market structure remains ok despite the current deceleration within the supply (resistance) area. While most of this ultimately should be positive for the market from a medium-term perspective, there are some other technical signals that are giving us pause for the time being.
First of all, the momentum oscillators all look pretty bearish, to be honest. Willy and the Stochastic are both pinned in officially overbought territory, RSI is showing multiple bearish divergences as it slowly retreats from overbought conditions and MACD looks close to crossing back below the zero-line on another bearish divergence as well. Additionally, exchange volumes leave much to be desired considering where the price is historically speaking, and volume profile remains very porous below the market all the way down to the $470 support area. Having said that, we think a move back down below $500 is highly unlikely given the current state of the shorter-term technicals and fundamentals, however we cannot rule out a continuation of the current correction back down to test trendline support in the high-$600’s, a move which would also complete the larger cup and handle pattern we previously mentioned. We would take advantage of such a move by buying the dip for an eventual retest of the heavy $770 – 780 resistance area.
All things considered, we think the Bitcoin markets remain in a good place from a long-term perspective and look ready to continue the generally bullish momentum going into 2017. While we still think new yearly highs are possible prior to January, we think a breakout above $1000 may still be a few months away. That said, we remain bullishly biased so we will continue to use dips into key support areas as buying opportunities for the next leg to the upside, whenever that may be.
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