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Bitcoin Weekly Focus: Negative Divergence?

BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar


Taking a closer look at the Bitcoin ( BITSTAMP:BTCUSD ) weekly chart, the following interesting observations deserves some consideration:

  • BTCUSD has been in a very strong bull trend this year, making higher highs and higher lows
  • So far we haven't seen a break of this pattern of higher highs and higher lows this year - this is especially evident on the weekly chart
  • Looking at the momentum profile (14 week RSI ), however, a lower high formed late August 2017 while price registered a higher high
  • Therefore we have negative divergence between price and momentum
  • This is usually indicative that a price correction is on the horizon as the weaker momentum could indicate that bulls are losing steam
  • However, we had seen a similar momentum-price negative divergence earlier in the year at the end of February 2017, but the negative divergence failed as price rallied subsequently to all time highs towards end of April 2017
  • The question therefore is whether negative divergence will be a leading indicator this time round or will history repeat itself again?
  • In majority of the cases, negative divergence does lead to a price correction or consolidation before continuing with its longer-term trend
  • As fundamental news releases could impact price behavior, we can therefore not say with certainty, except to fall back on price patterns repeating itself in majority of the cases, hence the foundation of technical analysis
  • It should be kept in mind that the Bitcoin Gold hardfork planned for October 25 as well as the SegWit2x upgrade planned for November of this year could have a significant impact on price
  • The next two weeks until the Bitcoin Gold hardfork will therefore be crucial as price is approaching its all time high near $5,000 resistance as well as the median line resistance of the long-term Pitchfork (October 2011 low, November 2013 high and January 2015 low)
  • It is also important to note that daily price action is in its 5th wave of the 2017 bull trend, which could lead to price exhaustion once complete
  • The weekly price action near these resistance levels over the next two weeks will tell whether an important top is in place or not and whether the negative divergence in price and momentum will yet again fail or hold its ground leading to a significant price correction
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