Since our previous update, the market has moved down to a low of $750, stalled out in the low $800’s for awhile, then recently took out the $900 level once again. Regardless of whether there is a continuation to the upside unless there is a break of the ATH the market will be in a large consolidation range.
This week has brought a fairly nice run to the upside following a rocky start to the year, although at this point it’s hard to call this anything more than a short-term countertrend bounce. Not to say that another leg to the upside is out of the question but even if we get an additional move higher over the coming days it all still fits in the framework we laid out last week for a relatively extended consolidation within a range likely between 800 to 1100. Despite the fact that the market spiked below $800 for a short time, generally speaking, we hold the opinion that the Bitcoin markets are in a large trading range that could take a month or two to get out of. That said, we see no reason to alter our longer term call for an eventual resolution to the upside implying that the price is now in a phase that should offer some attractive buying opportunities.
With that in mind, let’s take a look at the daily chart below for a closer view of the technical action over the past few months. We can see that the medium-term bull market remains intact considering both trend lines and the 200-day SMA held as support. Additionally, the price found its regional low in the upper demand area, which is also resistance turned support, on what appears at this point to be a proper ABC correction. While these indications seem to be hinting that a bottom is in around $750, it does not necessarily portend an imminent move back to ATH’s.
Moving on to momentum and volume, notice that the EMA’s are trying to turn back to the upside. Willy and RSI both appear to have bottomed for now, and MACD is close to moving back above the zero line after what was the biggest washout since November of 2013! Finally, the volume profiles look better than they have been in awhile despite the price being out of the value area. The A/D line continues to signal buying at these levels, and exchange volumes are shifting back to bullish. Speaking of exchange volumes, we can’t help but think that the magnitude of the volume spikes we saw last week was caused by margin and leverage, mainly on Chinese exchanges, which have now been cracked down upon by the authorities. We’ll see how volume develops over the next few months, but our hunch is that it will decrease in size but increase in true representativeness.
All things considered, we think the market is in a good place for the time being, one in which participants feel like the price is close to fair market value. Having said that, from the perspective of the longer term bull market this is simply a bump in the road that retraced the entirety of the parabolic move at the end of the year one that tested support and trend and held. This tells us that there is likely more upside to come over the course of 2017, but not without fits and starts like Bitcoin is prone to.
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