Bitcoin (BTC/USD) broke out of an inverse head and shoulders pattern in June on the weekly chart this year. The neckline of the pattern at the time was intersecting with the downtrend line of a three year triangle pattern. This multi-year triangle pattern projected an upside measured move price target of around $29,000 or roughly a 190% gain. The move is calculated by taking the height of the triangle and adding it to the breakout point. It seemed an ambitious goal. I always question the reliability of such large patterns but this triangle had three data points on the support line, and three on the resistance line. They clearly defined the pattern but while a clearly defined pattern is one thing, reaching a very large price projection is another.
In the last half of 2020 Bitcoin rallied and rallied hard. It has now reached the $29,000 triangle price projection. In fact, Bitcoin is up over 300% since the start of the year. So, the question is: do you trust the pattern and its achievement and take profits, or do you see better things for Bitcoin in the new year and HODL on? There are a number of individual factors that come in to play. Traders are sometimes lumped into one category but we are all different with different trading requirements and personal goals. I always see the middle of the road as a good option. Take some profits. If you own a bunch of or just several Bitcoins then take some profits. It just seems like a logical option at a logical price level.
Since early September many of the large cap tech names have been moving basically sideways. Amazon (AMZN) shares are a perfect example. They have been headed right on the chart in an increasingly tight series of lower highs and higher lows. The price action formed a symmetrical triangle or wedge pattern on the daily chart. To be more exact the pattern is called a rising wedge because the consolidation came after the uptrend that began earlier this year.
Note that Amazon’s 50 day moving average runs right through the middle of the wedge pattern (dashed red line). On this chart, I reset the Bollinger bands indicator to use that 50 day moving average as its centerline. Normal Bollinger bands are constructed two standard deviations around the 20 day average. We have changed the centerline average. The outer bands of this 50 day average hybrid remain the usual two standard deviations above and below the average. With the 50 day average moving nearly horizontally the two standard deviation bands have marked the most volatile moves away from the average and helped to define the triangle.
These modified Bollinger band limits may help to confirm an ultimate breakout or breakdown in Amazon’s wedge pattern.
The month of November was been a positive one for the broader market, but it was also one that sent a number of mixed signals. The first week saw a sharp jump in the indices followed by a gap even higher to start the second week. But that gap-up day turned decidedly negative by the end of the trading session. We wrote this article about the negativity of the daily candles. The market dipped the following day but then continued on its upward path. One week later a bearish eveningstar top formed on the daily index charts. We highlighted that reversal formation and once again, the indices dipped briefly and then made new highs.
The point is that, as always, the market sends false signals as it does its best to prevent traders from divining its movements. That brings us to todays commentary. It is simple, we have reached an important point in the Fibonacci time sequence when measured off the 2009 low. If we begin measuring the fabled sequence off the low made in 2009 on the weekly charts, we find that we are 233 weeks from that point. That is the 13th Fibonacci time zone. (for more information on Fibonacci measurements this is just one of many resources online.)
At this point it is impossible to say what reaching this Fibonacci way-point means for the market. Like all technical trading tools it must be followed by a period of confirmation. In most cases, the more esoteric the trading tool the less likely, in our opinion, of any meaningful affect on the market. That said it is important to be aware of all the signals the market sends, and to factor them in to your trading plan.