Bitcoin - The Head and Shoulders formation Has Completed
Bitcoin has now completed the Head and Shoulders formation. After coming close to breaking the neckline yesterday morning bitcoin did indeed break it this morning. As a result, bitcoin has experienced a significant drop in price, as of me writing this the price is at $10,598 after hitting a low of $10,510 a little earlier. So how low will the price of bitcoin go? I honestly cannot predict precisely just where bitcoin will bottom and start moving higher again. I can say that the measured move of the Head and Shoulders formation is near $9800. As you can see on the chart there is the CME gap which extends from $9665 up to $9925. As I said the measured move would be met at around $9800 but if the price of bitcoin does indeed get that low, I would expect it to drop further to fully fill the gap.
It is still too early to say if the measured move will be met, there is also the long-term trend line (light blue line). This trend line begins at the all-time high set in December 2017 and extends to hit the high set in June of 2019. This trend line was broken when bitcoin pushed above it on July 27th on its way up to $12k. It is possible that it might provide enough support to limit the downside. It is possible that this pull back could only result in a re-test of the long-term trend line. Bitcoin has already hit a low of $10,510 and I estimate the trend line to be in the $10,450 to $10,475 area so the drop to $10,510 may have been close enough to act as a re-test. Only time will tell but that could have been the bottom and bitcoin could just bounce higher from here.
Having said that though I should say that in the short history of the CME bitcoin futures, all the gaps have eventually been filled. Eventually is the key word here because it is always possible for it to be filled not now but later in the future. During the coming or I should say current bull run because I believe we are in the early stages of a new bull run, if the price of bitcoin reaches $50,000 and the following bear market results in an equivalent price drop as the last one (around 85%) that would mean a low of $7500 which would then easily fill the CME gap. So really the peak of the bull market could be even higher, I would say even up to $70,000 and still fill the CME gap during the following bear market.
As always, I want to stress that I remain very bullish in the medium to long term. I have no doubt that this bull market will be the same as in the past, there will be deep corrections along the way. During the 2017 bull market there were several corrections of 30% to 40%, even if bitcoins price does drop to fill the CME gap that would only be about a 23% drop. A 30% drop would put the price of bitcoin in the mid $8k range and a 40% drop would put the price of bitcoin in the mid $7k range. These seem severe but they would still be in line with corrections from the 2017 bull market.
So, in closing I would just say that there is no need for panic, I find it interesting that no matter how well bitcoin has performed whenever there is any type of correction people start freaking out. We must remember that this is all part of the process, I actually welcome these corrections which I use to add to my long-term positions and as trade opportunities.
It is still too early to say if the measured move will be met, there is also the long-term trend line (light blue line). This trend line begins at the all-time high set in December 2017 and extends to hit the high set in June of 2019. This trend line was broken when bitcoin pushed above it on July 27th on its way up to $12k. It is possible that it might provide enough support to limit the downside. It is possible that this pull back could only result in a re-test of the long-term trend line. Bitcoin has already hit a low of $10,510 and I estimate the trend line to be in the $10,450 to $10,475 area so the drop to $10,510 may have been close enough to act as a re-test. Only time will tell but that could have been the bottom and bitcoin could just bounce higher from here.
Having said that though I should say that in the short history of the CME bitcoin futures, all the gaps have eventually been filled. Eventually is the key word here because it is always possible for it to be filled not now but later in the future. During the coming or I should say current bull run because I believe we are in the early stages of a new bull run, if the price of bitcoin reaches $50,000 and the following bear market results in an equivalent price drop as the last one (around 85%) that would mean a low of $7500 which would then easily fill the CME gap. So really the peak of the bull market could be even higher, I would say even up to $70,000 and still fill the CME gap during the following bear market.
As always, I want to stress that I remain very bullish in the medium to long term. I have no doubt that this bull market will be the same as in the past, there will be deep corrections along the way. During the 2017 bull market there were several corrections of 30% to 40%, even if bitcoins price does drop to fill the CME gap that would only be about a 23% drop. A 30% drop would put the price of bitcoin in the mid $8k range and a 40% drop would put the price of bitcoin in the mid $7k range. These seem severe but they would still be in line with corrections from the 2017 bull market.
So, in closing I would just say that there is no need for panic, I find it interesting that no matter how well bitcoin has performed whenever there is any type of correction people start freaking out. We must remember that this is all part of the process, I actually welcome these corrections which I use to add to my long-term positions and as trade opportunities.
