Bitcoin has broken above the downtrend line drawn off the lower highs that followed last year’s $20,000 high. It is currently being skewered by the 38% Fibonacci retracement level of that memorable 2017 high and this year’s reaction low.
This is a big breakout from a technical perspective but there have bee a lot of lines drawn on this chart over the last several months, and a number of false breakouts from potential basing patterns. So the question is: is this the real thing or is it just fantasy.
There are an infinite number of outcomes over time, of course, but let’s consider the shorter term higher probability moves.
The optimal price action, in my opinion, would be for the current intermediate term trend to remain in place and for Bitcoin to continue to make higher highs and higher lows above an extension of the one month uptrend line. Repetitive and constructive price action that defines a well-tested tend line gives investors confidence and attracts new money.
Another possible scenario, is that the uptrend line is broken and fails. This would probably take the price of Bitcoin back down to the $9100 level. If this happens sooner than later, it would create a channel with the 38% retracement level acting as resistance and the 24% retracement level as support.
A third guess, is that Bitcoin moves above the 11,200 level but meets resistance at the 50% retracement level and tracks along horizontally between those two levels of support and resistance. Channel price action with intermittent false breaks along the way.
The final scenario, is that Bitcoin gains even more traction over the weekend. The move picks up steam and breaks through the 50% retacement level. This is not the optimal outcome from my perspective. It would encourage profit taking and accelerate volatility.
So these are four of the more highly probable outcomes in an infinite set of outcomes. Two are positive and two less constructive. Again, anything can happen, and my simple analysis gives a 50%/50% probablity that Bitcoin will move higher or lower. Not helpful. But from a subjective perspective the chart has taken on a more bullish tone to my eye.
This is what I’m seeing.
The price action this year has formed a rudimentary inverse head and shoulders base with neckline resistance at the 38% retracement level in the 11,221 area. Recent price action could also be seen as a cup and handle formation that shares its rim line resistance level with the cup and handle neckline. Now if you measure the depth of the cup and add that amount to the rim line, the pattern projects a potential target price in the $16,569 area or just below the 79% retracement level.
The stock market had a bad week but Bitcoin had a good week. I would have expected Bitcoin to drop as investors liquidated speculative positions in Bitcoin to cover margin calls in the stock market. That did not happen, in fact Bitcoin may have replaced gold as a safe haven play, because the SPDR Gold Shares ETF (GLD) was down 0.59% last week, while Bitcoin was up 15%.
Bitcoin is a speculative play and erratic price action can take trend lines and price patterns and turn them to rubble. But the obvious noted, the recent price action on the chart is constructive and encouraging. The next big milestone will be recapturing and holding the 50% retracment level in the $12,883 area.
That level of recovery will get the market’s attention.