Bear Flag Pattern
Bitcoin (BTC/USD) surged during yesterday’s North American trading session, trading as high as $8 310 ($10 889 CAD), before profit-taking ensued, finding short-term support right at the 4-hour 100-bar simple moving average (MA100), above the $8 200 ($10 747 CAD) support level during the subsequent Asian trading session.
Over the past 3 weeks, bitcoin has been printing a series of higher swing lows and a higher swing high, playing out within a parallel channel, which could potentially be defined as a bear flag pattern.
A bear flag is price action within the context of a downtrend that produces higher swing lows and higher swing highs, during a consolidation phase before a potential resumption of the downtrend.
Bitcoin managed to find support above $7 800 ($10 222 CAD) on 18 October 2019, at the trendline support connecting the recent lows, before starting a new short-term uptrend, regaining the $7 900 ($10 353 CAD) horizontal support level, before breaking out straight through the MA50 resistance level on the 4-hour chart, closing above both the 0.382 Fibonacci retracement level ($8 196) ($10 741) of the drop from $8 820 to $7 811 ($11 559 to $10 236 CAD) and MA100 on the 4-hour chart.
Bitcoin is now battling significant horizontal resistance in the $8 200 to $8 250 ($10 747 to $10 812 CAD) range, which could result in a short-term continuation in upward trajectory to major horizontal resistance around $8 400 ($11 008 CAD) should this short term uptrend continue, with between a 0.5 and 0.618 Fibonacci retracement (between $8 315 and $8 435) ($10 897 – $11 054 CAD) of the drop from $8 820 to $7 811 ($11 559 to $10 236 CAD).
Should bitcoin break above these resistance levels over the short-term, there will be major resistance in the $8 540 to $8 620 ($11 192 to $11 297 CAD) resistance range, which coincides with a range between MA200 on the 4-hour chart, the 0.786 Fibonacci retracement level ($8 604) ($11 276 CAD) of the drop from $8 820 to $7 811 ($11 559 to $10 236 CAD), and major horizontal resistance at $8 620 ($11 297 CAD).
Should bitcoin break down below the channel / flag support, there could be a rapid price depreciation for bitcoin to potentially print the upcoming mid-term low.
ADX/DI, which is a trend strength and trend direction indicator, is reflecting a bullish trend direction on the 4-hour chart, with +DI (bullish trend direction) above -DI (bearish trend direction), and with ADX (trend strength) increasing with each successive 4-hour candle close, although not yet convincingly strong enough since ADX is not yet above the 25 level.
Looming Death Cross
There is a potential death cross looming on the daily chart which could take place within the next couple of weeks.
A death cross is when the 50-day simple moving average (MA50) crosses the 200-day simple moving average (MA200) to the downside, and is usually a long-term bear market indicator if BTC is unable to break back above MA200 after the death cross event has taken place.
If we compare the current looming death cross to the death cross which took place in March 2018, there are quite a few similarities.
Back then, bitcoin first lost MA200 as support, then bitcoin unsuccessfully retested MA200 as resistance, and then bitcoin bottomed right as the deathcross was taking place.
Bitcoin then experienced a strong rebound, going on to unsuccessfully retest MA50, MA100, and MA200 daily moving averages as resistance, with the highest retest being daily MA100 and the 50% retracement level ($9 909) ($12 984 CAD) of the prior bull market uptrend from $152 to $19 666 ($199 to $25 770 CAD).
Currently, bitcoin has already lost MA200 as support, unsuccessfully retested MA200 as resistance, and now there is a looming death cross which should potentially coincide with a mid-term major low being established within the next couple of weeks, before a strong potential rebound to again retest all 3 daily moving averages, and with the highest retest potentially being daily MA100, and the 0.382 Fibonacci retracement level ($9 770) ($12 802 CAD) of the impulsive move from $3 122 to $13 880 ($4 091 to $18 186 CAD).
When bitcoin established that major mid-term low and rebounded from that level in 2018, there was also a bullish DI cross on the ADX/DI indicator, which determines trend strength and trend direction. Bitcoin had been in a bearish trend on the daily chart before that reversal took place on the ADX/DI indicator.
Relative Strength Index (RSI), a momentum indicator which measures the speed and change of price movements, also had a cross back above centerpoint reflecting a reversal in trend.
The same should potentially apply currently, and when BTC does establish a mid-term major low, there should be a bullish cross between +DI (bullish trend direction) and -DI (bearish trend direction), and a cross back above centerpoint on the RSI to indicate a mid-term bullish trend reversal.
The difference between now and then, however, is that when bitcoin lost MA200 as support in 2018, it resulted in both a 0.618 Fibonacci retracement of the prior uptrend from $152 to $19 666 ($199 to $25 770 CAD), and a 1.382 Fibonacci extension of the initial drop from the $19 666 ($25 770 CAD) swing high to the initial $10 938 ($14 332 CAD) swing low (both levels coinciding the $7 600 / $9 958 CAD level, a level which bitcoin dipped below while bottoming) before unsuccessfully retesting MA200 as resistance.
This time, however, after unsuccessfully retesting MA200 as resistance after losing it as support, BTC has yet to experience a 0.618 Fibonacci retracement of the prior uptrend from $3 122 to $13 880 ($4 091 to $18 186 CAD), and is yet to experience a 1.382 Fibonacci extension of the initial drop from $13 880 to $9 049 ($18 186 to $11 858 CAD) (both also coinciding with the same level – the $7 200 / $9 435 CAD level of support), which means we could still be in the process of establishing a new mid-term low.
Considering that the current looming death cross is playing out at a higher level (in terms of relative Fibonacci retracement levels) than in 2018, and considering that there is major support at both the fib cluster at 2018’s $7 600 ($9 958 CAD) level, as well as the current fib cluster at the $7 200 ($9 435 CAD) level, there could potentially be a mid-term major low established within that range between $7 200 and $7 600 ($9 435 – $9 958 CAD) when the current death cross event takes place.
Looking at the weekly chart, BTC is yet to break the 100-week simple moving average support, which is currently sitting at $7 750 ($10 156 CAD), however it is too early to determine whether BTC has established a major low yet.
There has been a lot of comparisons lately between the bottoming process in the $3k region, and an assumed bottoming process right now, however there are a number of factors which need to be taken into account.
Firstly, at the time of bitcoin’s breakout above $4 100 ($5 372 CAD) at the start of April 2019, the Relative Strength Index (RSI) had major horizontal resistance which had previously served as major horizontal support through-out 2018 before breaking down from the $6k ($7 862 CAD) region.
This level is important because once that support was broken in November 2018, BTC capitulated, depreciating by 50%, and ended up bottoming at $3 122 ($4 091 CAD). Then, once that same level was broken as resistance at the start of April 2019, BTC went on to record 242.5% gains, rallying impulsively to a yearly high of $13 880 ($18 186 CAD).
Bitcoin is now in quite an ominous position yet again, because that same horizontal RSI level is close to being tested as support. Since this has not happened yet, I’m inclined to believe that BTC has not yet bottomed, at least not until that horizontal level is retested.
Secondly, ADX/DI had a bullish DI cross on the weekly chart when BTC broke that $4 100 ($5 372 CAD) support in April. BTC had been in a bearish trend and ADX had declining bearish trend strength leading up to the bullish breakout.
Looking at the weekly ADX/DI indicator now, BTC has been in a strong bullish trend, which now has rapidly declining bullish trend strength, and could potentially result in a bearish DI cross, if that major horizontal RSI support level doesn’t hold.
This could potentially lead to another breakdown in price and the start of a new weekly bearish downtrend.
Alternatively, if that RSI level gets retested as support and holds strong, with ADX/DI maintaining the larger bullish trend on the weekly chart, BTC can establish another bottom, and potentially resume the bullish uptrend and record new yearly highs.
Since the breakdown from $10k ($13 104 CAD), trading volume has been tapering off again on the weekly chart, as BTC indecisively approaches either a bottom or breakdown level, and with many traders preferring to err on the side of caution until there is further clarity regarding the larger trend.
Major Weekly Levels Support and Resistance
Major weekly levels of immediate support below:
– $7 750 / $10 156 CAD (weekly MA100)
– $7 231 / $9 476 CAD (0.618 Fibonacci retracement level of the entire move from $3 122 to $13 880)
– $6 800 / $8 911 CAD (weekly MA50 support).
If the major low is in fact already established, there will be major weekly levels of resistance above:
– $8 501 / $11 140 CAD (50% retracement level of the entire move from $3 122 to $13 880)
– $9 034 / $11 838 CAD (0.214 Fibonacci retracement level of the correction from $13 880 to the recent $7 714 swing low)
– $9 365 / $12 272 CAD (major horizontal resistance)
– $9 770 / $12 803 CAD (0.382 Fibonacci retracement level of the entire move from $3 122 to $13 880)
– $10 069 / $13 195 CAD (0.382 Fibonacci retracement level of the correction from $13 880 to $7 714)
– $10 797 / $14 149 CAD (50% retracement level of the correction from $13 880 to $7 714)
– $11 524 / $15 101 CAD – $11 577 (0.618 Fibonacci retracement level of the correction from $13 880 to $7 714 and 0.214 Fibonacci retracement level of the entire move from $3 122 to $13 880)
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