The plunge on Saturday vastly changed the technical map. The key area of support that we've based our bullish case on over the last few weeks was obliterated in a single blow. This spells trouble to anyone who comes unprepared.
In our case, we have warned about a possible flat correction for quite some time now, and that flat is now more in the cards than ever before.
Let's begin by zooming out and recapping the situation. Bitcoin has broken through its cluster of support at 51-53 000 dollars.
But not only that. It has also sailed through its leeway safety margins diagonal trend line on the regular chart, as in the arithmetic one.
And while on this very chart, the particularly early worrying sign is that Bitcoin retested it upon its steep four day 25 percent dead cat bounce after which it then got rejected. And if that weren't enough, Bitcoin has gotten rejected by the ever so important and reliable EMA200 on the daily.
Does this all mean it's automatically downhill from now? Breaking the key cluster support and now trading below the daily EMA200? No. But it HAS drastically altered the probabilities in favor of the bears. And as we're not here to predict the future - for that is by no means what technical analysis is about! - but rather to identify the market sentiment and where the big forces are taking us, we must not stick our heads in the sand and pretend all is fine. In this sense, until we have very good cause to be bullish again, I will remain on the sidelines, for we can still have a long way down to go. More on this in a bit.
Right. So we're trading below the key support cluster that we previously based our long on. That cluster now acts as resistance.
If we proceed to look at the RSI, we get further confirmation of why I wouldn't enter with longs under any circumstances yet. On the daily chart, it is struggling to even break above the lower bullish red.
And to those of you who know your RSI then an RSI that stays below the LBR line is considered to be heavily trending with the bears. It's what we refer to as a bearish motorway.
Naturally, this in itself doesn't mean that the daily RSI cannot recover. But if we zoom on to the 8-hour and 4-hour charts we can equally tell that they're both struggling in firm bearish blue RSI channels respectively.
8-hour chart:
4-hour chart:
And what signifies a bearish blue signal is that any relief rally fails to bring the RSI past the upper bearish blue line. And if it does, it barely stays above for long enough to even catch its breath before plunging right back down again.
And on top of the ever so weak RSI, we also have a fat bundle of moving averages right above, tightly knit enough to act as an unleakable ceiling. For lo and behold, not much bullish sun will make it through this cluster resistance we're facing above. We're talking the EMA and SMA 50, 100 and 200; the red ichimoku kumo; the diagonal resistance line that dates all the way back to the all-time high; the strong horizontal resistance zone between $51 000-53 000.
And while on the 4-hour chart, whatever move we're seeing is a highly likely bearish continuation flag.
This is what we must statistically expect as they in fact ARE continuations for as long as they no longer are. So far we've had three already prior to the current one.
What on earth should convince us that this time is the unlikely exception? The only exceptions I will adhere to personally are RSI signals. And the reason for this is that they come at such low risk ... and all the while at an uncanny and unparalleled ability to identify absolute lows or the very root between accumulations and mark-ups. And speaking of the devil, we just got ourselves a lower bullish red buy signal - as in a bottom reversal - which was confirmed at 8am GME time this morning.
In this sense, as long as the 4-hour chart doesn't close below roughly ~$47 550, we have a strong risk to reward setup with a high likelihood of actually taking the price up far.
If we proceed to the flat correction that we've been constantly been keeping at the back of our heads for about a couple of months now, then this move and its 22-25 percent recovery (depending on what Bitcoin chart we use) more than well qualifies for a first and second leg out of the C-wave's total of five.
Depending on whether this flat ends up being a running flat or an expanding flat, the ultimate target and its lingering way to get there may alter significantly. If we were to get a running flat, at which we won't take out a new A-wave low ...
... it naturally follows that the second and fourth wave recoveries may be longer as well as each impulse down being shorter. If we're in for a running flat (and if I know Bitcoin correctly) then we're not gonna stop the second wave of the C-wave at 53 000. In such case we may very well test the 58-59 000 dollar resistance area.
If, on the other hand, we were to get an expanding flat, then each down-impulse should be dire in its characteristics. In such case the 3rd wave should be likely to end either at the key support at around 30 000, or it may find its way slightly back below and retest it again as resistance amidst its fourth wave correction prior to rolling over like a dead whale towards the low to mid 20 000s.
One thing that duly speaks in favor of a running flat being in play is this: So far we have a technically confirmed sideways range.
However, to any sticklers out there, it can also be drawn as a very lightly ascending channel.
But as the angle is near negligible whichever we ultimately choose will have little to no impact on our point here. The point is that if we were to see a running flat it is likely to finish somewhere between 29 and 36 000 dollars depending on when it were to reasonably take place and depending on what scale it will adhere to - the arithmetic or log.
But the main reason why I even bring this up is this. It has recently (from continuous empirical observations) struck me that a sudden steep price plunge, like that from April to May ...
... which in turn is proceeded by an ascending channel, like this ...
... almost always go on to complete the range or channel. I have seen many renowned technicians - many of whom should certainly know better - who draw this here as an ascending triangle.
But this here could never qualify for a triangle due to the vast areas of empty space.
As a rule of thumb, if the texture much resembles a big, wide U-formation ...
... then it's NOT a triangle.
And the reason why this is so important is because an ascending triangle is bullish. Hence falsely basing our TA on an invalid formation will do a good job in itself in tricking us in the wrong direction. This is when their wakeup calls come way too late for them to react to it.
As it stands, our main case now based on the nullified price development over the weekend is for a final price between 29 to 36 000 dollars. With that said, and based on the fact that that the lower bullish red buy signal on the 4-hour charts remains in play, then we could be in for some sort of a relief rally up to the mid to late 50 000s. The extent of such prospect second wave of the C-wave will in turn will determine whether we're likely facing a running flat or an expanding flat. In case of the former, I will begin to scale in heavily again in the low to mid 30 000s. If, on the other hand, the Elliott count justifies an expanding flat, then out long-standing target of 22-25 000 dollars remains.
In our case, we have warned about a possible flat correction for quite some time now, and that flat is now more in the cards than ever before.
Let's begin by zooming out and recapping the situation. Bitcoin has broken through its cluster of support at 51-53 000 dollars.
But not only that. It has also sailed through its leeway safety margins diagonal trend line on the regular chart, as in the arithmetic one.
And while on this very chart, the particularly early worrying sign is that Bitcoin retested it upon its steep four day 25 percent dead cat bounce after which it then got rejected. And if that weren't enough, Bitcoin has gotten rejected by the ever so important and reliable EMA200 on the daily.
Does this all mean it's automatically downhill from now? Breaking the key cluster support and now trading below the daily EMA200? No. But it HAS drastically altered the probabilities in favor of the bears. And as we're not here to predict the future - for that is by no means what technical analysis is about! - but rather to identify the market sentiment and where the big forces are taking us, we must not stick our heads in the sand and pretend all is fine. In this sense, until we have very good cause to be bullish again, I will remain on the sidelines, for we can still have a long way down to go. More on this in a bit.
Right. So we're trading below the key support cluster that we previously based our long on. That cluster now acts as resistance.
If we proceed to look at the RSI, we get further confirmation of why I wouldn't enter with longs under any circumstances yet. On the daily chart, it is struggling to even break above the lower bullish red.
And to those of you who know your RSI then an RSI that stays below the LBR line is considered to be heavily trending with the bears. It's what we refer to as a bearish motorway.
Naturally, this in itself doesn't mean that the daily RSI cannot recover. But if we zoom on to the 8-hour and 4-hour charts we can equally tell that they're both struggling in firm bearish blue RSI channels respectively.
8-hour chart:
4-hour chart:
And what signifies a bearish blue signal is that any relief rally fails to bring the RSI past the upper bearish blue line. And if it does, it barely stays above for long enough to even catch its breath before plunging right back down again.
And on top of the ever so weak RSI, we also have a fat bundle of moving averages right above, tightly knit enough to act as an unleakable ceiling. For lo and behold, not much bullish sun will make it through this cluster resistance we're facing above. We're talking the EMA and SMA 50, 100 and 200; the red ichimoku kumo; the diagonal resistance line that dates all the way back to the all-time high; the strong horizontal resistance zone between $51 000-53 000.
And while on the 4-hour chart, whatever move we're seeing is a highly likely bearish continuation flag.
This is what we must statistically expect as they in fact ARE continuations for as long as they no longer are. So far we've had three already prior to the current one.
What on earth should convince us that this time is the unlikely exception? The only exceptions I will adhere to personally are RSI signals. And the reason for this is that they come at such low risk ... and all the while at an uncanny and unparalleled ability to identify absolute lows or the very root between accumulations and mark-ups. And speaking of the devil, we just got ourselves a lower bullish red buy signal - as in a bottom reversal - which was confirmed at 8am GME time this morning.
In this sense, as long as the 4-hour chart doesn't close below roughly ~$47 550, we have a strong risk to reward setup with a high likelihood of actually taking the price up far.
If we proceed to the flat correction that we've been constantly been keeping at the back of our heads for about a couple of months now, then this move and its 22-25 percent recovery (depending on what Bitcoin chart we use) more than well qualifies for a first and second leg out of the C-wave's total of five.
Depending on whether this flat ends up being a running flat or an expanding flat, the ultimate target and its lingering way to get there may alter significantly. If we were to get a running flat, at which we won't take out a new A-wave low ...
... it naturally follows that the second and fourth wave recoveries may be longer as well as each impulse down being shorter. If we're in for a running flat (and if I know Bitcoin correctly) then we're not gonna stop the second wave of the C-wave at 53 000. In such case we may very well test the 58-59 000 dollar resistance area.
If, on the other hand, we were to get an expanding flat, then each down-impulse should be dire in its characteristics. In such case the 3rd wave should be likely to end either at the key support at around 30 000, or it may find its way slightly back below and retest it again as resistance amidst its fourth wave correction prior to rolling over like a dead whale towards the low to mid 20 000s.
One thing that duly speaks in favor of a running flat being in play is this: So far we have a technically confirmed sideways range.
However, to any sticklers out there, it can also be drawn as a very lightly ascending channel.
But as the angle is near negligible whichever we ultimately choose will have little to no impact on our point here. The point is that if we were to see a running flat it is likely to finish somewhere between 29 and 36 000 dollars depending on when it were to reasonably take place and depending on what scale it will adhere to - the arithmetic or log.
But the main reason why I even bring this up is this. It has recently (from continuous empirical observations) struck me that a sudden steep price plunge, like that from April to May ...
... which in turn is proceeded by an ascending channel, like this ...
... almost always go on to complete the range or channel. I have seen many renowned technicians - many of whom should certainly know better - who draw this here as an ascending triangle.
But this here could never qualify for a triangle due to the vast areas of empty space.
As a rule of thumb, if the texture much resembles a big, wide U-formation ...
... then it's NOT a triangle.
And the reason why this is so important is because an ascending triangle is bullish. Hence falsely basing our TA on an invalid formation will do a good job in itself in tricking us in the wrong direction. This is when their wakeup calls come way too late for them to react to it.
As it stands, our main case now based on the nullified price development over the weekend is for a final price between 29 to 36 000 dollars. With that said, and based on the fact that that the lower bullish red buy signal on the 4-hour charts remains in play, then we could be in for some sort of a relief rally up to the mid to late 50 000s. The extent of such prospect second wave of the C-wave will in turn will determine whether we're likely facing a running flat or an expanding flat. In case of the former, I will begin to scale in heavily again in the low to mid 30 000s. If, on the other hand, the Elliott count justifies an expanding flat, then out long-standing target of 22-25 000 dollars remains.