Short

BTC May Push Higher Before Lower Again

Updated

BTCUSD has traded in a choppy fashion for some time. Since mid-June 2022, it has traded modestly downward (downward and sideways) relative to the steep downtrend it experienced from the November 2021 all-time high to the June 2022 lows. This author has refrained from posting on crypto for a while given the choppy and uncertain nature of the space.

Supplementary Chart A: BTC's Weekly Chart with Yellow Box Showing Choppy, Sideways to Modestly Downward Price Action for the Last Half Year

But BTC looks to be pushing back to downtrend resistance. This will be a make-or-break time for BTC if the downtrend resistance can be reached. Bears will want to short, and intelligent bears will want to define their risk at the downtrend resistance levels—either the downtrend line, a key Fibonacci cluster, or the prior swing high (where the bluish-teal rectangle is placed on the Primary Chart).

BTC's downtrend remains intact on a log chart. The burden is on the bulls to break that downtrend structure, convert it to a sideways or neutral trend, that may base for some time, and then refashion the structure in to a series of higher lows and higher highs (an uptrend)
BTC may reach the following levels, which will not be considered "corrective-rally targets" given that the downtrend seems ready to resume at any time. So perhaps consider these as levels to watch:
(1) $19,183.29, which is the .618 retracement of the most recent leg of decline, to $19,339.19, which is the measured-move area (a 1.00 Fib projection of the first leg of the bounce from the start of the second leg) and $19,500, which is the 200-day SMA (magenta);
(2) $20,190 to $20,262, which zone includes the .786 Fibonacci retracement and the 1.272 projection of first wave off the November 2022 lows (projected from the start of the second wave); and
(3) $21,300 to $21,478, which zone lies at the prior swing high and the downtrend line resistance.
To determine whether this post is successful, price must fail at one of the levels presented above, and resume the downtrend with a leg lower that breaks the uptrend line from November 21, 2022. This outcome will serve as the standard / criterion for evaluating this idea later on. Of course, the price paths shown on the primary chart are hypothetical only, no one knows exactly which path price will take.
Regardless of one's view (bullish or bearish or neutral) the simple uptrend line from November 21, 2022, lows guides this corrective bounce. When that is broken, expect impulsive movement lower again.

No one knows with certainty whether the bear market is over in crypto and equities. Traders and chart watchers can simply make their best guess based on the probabilities presented by the patterns and technical analysis. Markets will sometimes violate the patterns and move in a manner that confounds the indicators. That is why risk management is so vitally important for traders.

Thank you for reading, and Happy New Year / Feliz Año Nuevo!

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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

Note

BTC broke above it's 200-day SMA (pink line). It appears to have reached (and possibly hold on a close) the first level of interest at $19,183 - $19,339. The next level to watch was given at $20,190-$20,262 (two Fibonacci levels). That level is not far off and may be reached over the weekend.

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Bears must be covering as BTC has rocketed higher over 5% per day for three consecutive days.
The weekly gain so far is +22.48%. We will see where it closes.

One of the most important qualities in top traders is being flexible, willing to see the probabilities on a given day as the technicals stand, but also being willing to change and be wrong when price starts breaking levels and doing the opposite of what the technicals suggest. That's also strong technical evidence that can't be ignored. A famous author and trading expert, Jack Schwager, talks about how the best investors and traders are quite flexible, able to change their view "on a dime," willing to flip their view from bullish to bearish or vice versa in a matter of days or weeks.

So ST is working on being willing to be wrong about the continued validity of the downward TL. The macro environment and liquidity issues (and higher for longer rate policies) don't support a new bull. Nor does the current structure of longer term price action.
But trendlines simply don't last forever. Sometimes they are replaced by less steep ones as bigger intermediate-term corrective moves occur, and a downtrend has an intermediate-term period of consolidation. BTC is not going immediately back to all-time highs or even to 50K. But if the downward TL breaks, it could push to 32K to 38K (50% or 62% retracements of the bear market). So watching how price responds to that TL is critical. Ultimately, no one knows what happens next, but we can see what signals appear when price reaches critical technical levels.

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BTC is looking exhausted here, but with a 22% to 24% move in the past week, don't discount the ability to push through some key levels to wreck the TA and make the whole picture a lot more messy and confusing. All the upside levels (zones) of interest mentioned in my post have been hit except for $21,478 (prior swing high) and the down TL on a log chart. Don't discount the ability of markets to trap bulls after whipsawing bears. Price could push through the down TL and up to before reversing with the wild price swings we're seeing.

But next week could bring some surprises in either direction. Be prepared.

Note

Also notice the divergences on momentum indicators. The two quickly reviewed here were ROC and RSI. Both showed divergences that were quite prominent -- The 2H and 4H charts show striking bearish divergences. Daily may eventually show one as well, but that would require a final push higher in a few days after a pullback. Watch the nature of the pullback to either define the uptrend channel or invalidate this whole push as a bull trap

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BTCUSD holding steading just over 21K. It has shown strength, but negative divergences are everywhere. It could make one more minor high for this short-term move with another divergence. Today, it has been failing at the .618 retrace of the last major leg down (the decline from mid-August 2022 highs).

But keep an open mind about whether BTC will break the downtrend line or not. As mentioned in a previous update, down TLs are meant to be broken. Breaking a line that held for a long time doesn't mean it's a new bull market, though it could mean higher prices as buyers get sucked in for a while. Instead, it means that the trend is being redefined. It may remain a downtrend but less steep after a messy corrective move higher. It also may turn into a neutral / sideways period before another major leg ensues.

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Divergences on the 8-hour chart too. Another higher RSI peak that is lower than the prior ones could still occur before the bigger pullback. The pullback will determine whether this goes to 30K or whether it goes to new lows.

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Who thinks BTC is breaking above that log down TL since all-time highs? That would make a nice bear trap before prices make their next leg lower. Max pain and confusion.

Not convinced either way yet. Price could fail right at the TL, or it could push through the TL to confuse everyone and trap bears before a flush lower in a few months. Both scenarios seem plausible. Keep tight stops whatever direction you play this

Note

Update on the divergences (bearish) forming here. The daily now nearly has a completed divergence. Just need a higher high. So the divergence may be complete right when price hits the down TL and makes a marginal new high perhaps? All eyes are on this, as BTC has everyone's attention.

Here is the 8-hour with clear divergences:

Note

And here is that marginal new high mentioned earlier today. With a complete negative divergence now on the daily and 8 hr. Will the TL break?

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The down trendline shown above has been broken on a daily close. Now it will be important to see whether this is a whipsaw or whether it will hold for some time. As mentioned, 8-hour and daily divergences exist (negative for top ticking buyers).

But if BTC holds above the down TL on any backtest, it will have further to run for this move, which presumably remains a corrective upward cycle. The next higher targets will be $25,212 (mid-August 2022 highs) and the VWAP from the all-time high at $30,120. It may also be that BTC has to do some sideways price discovery for a few months before putting in a final low.

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In this chart updated as of late in the day today, one can see that BTC is contending with a key area at .786 Fibonacci retracement and the VWAP from a significant peak in March 2022.

Note

The first part of the forecast seems to have worked out, though the second part has not. BTC has rallied from $18,812 when this forecast was published to a price of $23,362 as of a couple days ago (January 21's intraday peak).

The second part of the forecast seems more tenuous at this point. As noted on the primary chart, "decisive closes above the down TL may mean the corrective rally has more room to run." Several daily closes have occurred above that down TL. This break could be a whipsaw (let's see where the weekly close occurs). The VIX remains at a major support level for both the entire bear market in 2022 (daily chart) and an uptrend support from several years ago (weekly chart). This suggests complacency in a precarious time. Would not be surprised if this is a whipsaw. OR this could be the start of an adjustment to the slope of the downtrend. Downtrends are often redefined by TL breaks (same happens with uptrends). This can redefine the slope somewhat as price consolidates / retraces upwards over a larger time frame.

Going forward, the guiding technical level for this rally is the uptrend line from November 21, 2022, lows. This was made clear in the summary of the original post: "Regardless of one's view (bullish or bearish or neutral) the simple uptrend line from November 21, 2022, lows guides this corrective bounce. When that is broken, expect impulsive movement lower again."

As long as BTC remains above this logarithmic down TL, prices can rally to $25,212 at some point, and if that level is taken, perhaps $30,120.

Note

SquishTrade is starting to lean toward this corrective rally running a bit further to $25,212. Let's take this one level at a time. After $25,212 comes $28,000 - $30,000 zone. Despite the down TL being broken, this remains a bear market until prices can convincingly change the longer-term structure.
The decisive break of the TL does suggest prices have a bit further to run, likely to $25,212 at a minimum, perhaps 28K - 32K

Trade closed manually

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SquishTrade

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