quachy
Short

Bitcoin Mid-Year Update

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
I believe a short-term bottom is forming here at the $5,900 level.

In the left blue box, we can see that the price stabilized and rebounded in a meaningful rally from $6.8K to $9.8K, a 44% gain.

I think we’ll see the same pattern as the price stabilizes around the $5,8000–$6,000 level and the daily RSI (the purple line in the RSI indicator) begins reversing for the next few days, so pay attention to the activity in the right blue box because I think another rebound is due. This rebound will be less powerful than the previous two. Like the last two rebounds, I believe this one will be short–lived due to the lack of buyer demand for Bitcoin at these prices, and if we look at the Google Trends chart for Bitcoin , we can see that retail interest has not recovered. To outline the general path I think Bitcoin is going, I’ve overlaid some candles in light blue. These candles were copied from Bitcoin’s previous price movements.

This potential third peak would reinforce the bearish descending triangle pattern that’s been developing since February, as outlined by the thick green lines. When the price reaches the upper descending line of the triangle, I believe the price will fall again in an accelerated fashion down to the low $5,000s as speculators become less forgiving with a third failed rally.

After that, where might Bitcoin go for the rest of the year?

Since Bitcoin is a relatively young asset class, I believe it is following the path of a typical market cycle. While I do believe a significant rally will happen, possibly towards the end of the year, before that can happen, Bitcoin needs a strong wave of buyer demand and I think that can only happen if Bitcoin’s price drops so low that it creates an undeniable buying opportunity for the smart money—the whales and hedge funds—to feel confident that the bear market is nearing its end and that they’re buying at the lowest prices ahead of the next market cycle.

It’s hard to predict exactly what prices Bitcoin will drop to but we can use the weekly RSI to evaluate the price relative to its past. I believe the long-term selling will eventually end whenever the weekly RSI reaches near oversold conditions. Currently, the weekly RSI (the red line on the RSI indicator) is at 40.4 so we still have a ways to go before reaching 30, but I would start paying attention as we get closer. The last time the weekly RSI reached oversold levels was in January 2015 and speculators that bought in got in at the lowest lows for the next three years and counting as they enjoyed a three-year rally as the weekly RSI went from oversold to overbought, or in dollars, from $200 to $19,000.

Trade active: Forecast is on track (you can follow along the light blue candles).

Bitcoin formed a bottom and a rebound is now in effect. Longs can ride this rally to the first target: when the daily RSI reaches oversold conditions (≥70). This will probably be around $7,400 to $7,700. After that, we should we some consolidation before another spike upwards, completing a bull flag pattern at around $8,200 to $8,400. At that point, there should be bearish divergence on the daily RSI as prices makes a higher high but the daily RSI makes a lower high. That would be the second target from which to fully exit a long position.

After that, we should expect the price to drop and a retest of $5,900 as per the original forecast.

Here's a closeup of the forecast:
Comment: Bitcoin has reached my first short-term goals of $7,400–$7,700 and $8,200 to $8,400. The purple boxes highlight the target zones I mentioned on July 8.


But this rebound still has gas in the tank. We haven't seen the bearish divergence on the daily RSI (purple line) that I anticipated. While the daily RSI is in overbought territory, I expect Bitcoin to form a "W"-like pattern (or a crab pattern if you follow harmonic patterns) like it did back in the previous failed rebound between late April and early May. I expect the price will form a higher high to $8,600 before reversing while the daily RSI forms a higher low. I included the bar pattern from the previous rebound to illustrate the updated trajectory I'm anticipating.

If Bitcoin starts reversing after $8,600, we'll be back to the original forecast (the big light blue candle pattern) I covered in the original post.

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