Here's What You Need To Know About BTC's Bullish Divergence...
Today, we're looking at the daily BTC chart, to understand the upside and downside potential in the short-term. In other words, we're assessing the upside and downside potential over the next few days/weeks — not months/years. Regardless of what happens in the short-term, it's important to remember that the big picture is still very bearish. In fact, even if BTC rallied to 10,000, it would be nothing more than another lower high, and the bear market downtrend would remain intact. On October 26th, BTC reached 10,540. So, anything less than that would technically be a lower high. Just FYI, I don't expect a rally to 10,000 at the moment, I'm just using that as an example.
If you recall my analyses from a few months back, you may remember that I was explaining that BTC is currently in a bullish falling wedge (in black) but it has also formed a big bearish head and shoulders pattern (not identified for simplicity.) The neckline of the head and shoulders pattern is basically right around the area of the 61.8% retrace. As you can see, price has been really battling with that area. Not only is there a head and shoulders neckline there, but we also have the 618, and several key moving averages all converging in the same spot.
Looking at the moving averages, you can see that price has broken down below the 50 week MA (in green) and has failed repeatedly to get back above it. Also, the 50 DAY MA (in orange) is converging with the 50 week. During the past few days, the 50 day MA has been rock solid resistance. The 618 has been violated repeatedly, which is evidence that price isn't holding it. So, the fact that price is struggling to hold the 618, while also being suppressed by the overhead resistance of the moving averages, shows clear weakness.
However, there is a bullish divergence on the MACD (green rising trendline.) If we compare the current MACD divergence to a similar bullish divergence that occurred in 2018, we can see that there are some key similarities to note. Looking at the 2018 divergence, we can see the price rallied from the divergent low, but was stopped cold by the 50 week MA (pink circle.) What's interesting, is that while BTC has formed a bullish divergence, it appears to be running out of gas at the 50 week again. Not to mention the fact that the 50 day is there to increase the resistance.
So, unless we see BTC overtake the 50 day and 50 week MAs (which are currently converging at 7500) I think the most likely scenario is that BTC will move lower for another retest of the 6430 level. That would make the most sense to me, in terms of traditional technical analysis. I've talked a lot in the past about pattern morphing and pattern extensions, specifically with head and shoulders patterns. You can see that at 13800, BTC formed an asymmetrical head and shoulders, with the left shoulder being the largest peak. Despite the asymmetry, it broke down perfectly, to form what is now the head of a larger head and shoulders pattern. Further still, we can see that there is a descending head and shoulders pattern that makes up the right shoulder of the larger head and shoulders pattern. So, I wouldn't be surprised to see BTC continue to repeatedly test the 6430 level in a way that forms another iteration of head and shoulders patterns, before we see a major breakdown.
While there is technically still a chance that an upside breakout could occur (especially considering the bullish MACD divergence, and the tight convergence of the moving average resistance) I highly doubt that it would amount to anything significant enough to change the bearish downtrend. Just look at what happened the last time price found resistance at the 50 week. BTC fell 30% in a very short period of time. A similar fall would put BTC right on the top of my blue downtrend channel. However, if/when we get down there, BTC will almost certainly fall to the absolute king of support levels, which is the 200 week MA (in purple.) BTC has never broken below that, in any meaningful way, in it's entire existence. So, breaking below the 200 week moving average would be hugely negative for Bitcoin, and it would probably cause a massive panic sell. To highlight how important the 200 week MA is, it was held at the bottom of the bear market in 2015, and it was held at the bottom of the bear market in 2018. So, it's pretty damn important, and it looks like the market wants to test it again. Kick a door enough times and eventually it will open.
Remember, we're in a bear market downtrend. At the moment, there isn't a single higher low or a higher high on the chart, to even begin to suggest that a reversal is occurring. Therefore, the bears still have full uncontested control of BTC. Until meaningful changes develop, the overall projection is down. The trend is your friend.
FYI, if BTC does print a quick surge above the converging 50 day and 50 week moving averages, I would expect price to find resistance in the 8500 range.
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
If you recall my analyses from a few months back, you may remember that I was explaining that BTC is currently in a bullish falling wedge (in black) but it has also formed a big bearish head and shoulders pattern (not identified for simplicity.) The neckline of the head and shoulders pattern is basically right around the area of the 61.8% retrace. As you can see, price has been really battling with that area. Not only is there a head and shoulders neckline there, but we also have the 618, and several key moving averages all converging in the same spot.
Looking at the moving averages, you can see that price has broken down below the 50 week MA (in green) and has failed repeatedly to get back above it. Also, the 50 DAY MA (in orange) is converging with the 50 week. During the past few days, the 50 day MA has been rock solid resistance. The 618 has been violated repeatedly, which is evidence that price isn't holding it. So, the fact that price is struggling to hold the 618, while also being suppressed by the overhead resistance of the moving averages, shows clear weakness.
However, there is a bullish divergence on the MACD (green rising trendline.) If we compare the current MACD divergence to a similar bullish divergence that occurred in 2018, we can see that there are some key similarities to note. Looking at the 2018 divergence, we can see the price rallied from the divergent low, but was stopped cold by the 50 week MA (pink circle.) What's interesting, is that while BTC has formed a bullish divergence, it appears to be running out of gas at the 50 week again. Not to mention the fact that the 50 day is there to increase the resistance.
So, unless we see BTC overtake the 50 day and 50 week MAs (which are currently converging at 7500) I think the most likely scenario is that BTC will move lower for another retest of the 6430 level. That would make the most sense to me, in terms of traditional technical analysis. I've talked a lot in the past about pattern morphing and pattern extensions, specifically with head and shoulders patterns. You can see that at 13800, BTC formed an asymmetrical head and shoulders, with the left shoulder being the largest peak. Despite the asymmetry, it broke down perfectly, to form what is now the head of a larger head and shoulders pattern. Further still, we can see that there is a descending head and shoulders pattern that makes up the right shoulder of the larger head and shoulders pattern. So, I wouldn't be surprised to see BTC continue to repeatedly test the 6430 level in a way that forms another iteration of head and shoulders patterns, before we see a major breakdown.
While there is technically still a chance that an upside breakout could occur (especially considering the bullish MACD divergence, and the tight convergence of the moving average resistance) I highly doubt that it would amount to anything significant enough to change the bearish downtrend. Just look at what happened the last time price found resistance at the 50 week. BTC fell 30% in a very short period of time. A similar fall would put BTC right on the top of my blue downtrend channel. However, if/when we get down there, BTC will almost certainly fall to the absolute king of support levels, which is the 200 week MA (in purple.) BTC has never broken below that, in any meaningful way, in it's entire existence. So, breaking below the 200 week moving average would be hugely negative for Bitcoin, and it would probably cause a massive panic sell. To highlight how important the 200 week MA is, it was held at the bottom of the bear market in 2015, and it was held at the bottom of the bear market in 2018. So, it's pretty damn important, and it looks like the market wants to test it again. Kick a door enough times and eventually it will open.
Remember, we're in a bear market downtrend. At the moment, there isn't a single higher low or a higher high on the chart, to even begin to suggest that a reversal is occurring. Therefore, the bears still have full uncontested control of BTC. Until meaningful changes develop, the overall projection is down. The trend is your friend.
FYI, if BTC does print a quick surge above the converging 50 day and 50 week moving averages, I would expect price to find resistance in the 8500 range.
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-