Will we smash resistance or find a double top here?
At the time of writing, it looks like we may have a new yearly high incoming for bitcoin. Strong gains yesterday pushed BTC up to $5,600 once again. The market appears to have simply shrugged at the Tether/Bitfinex bad news, essentially ignoring the fact that USDT is now not fully backed by dollars (the irony to the whole episode is that it proved that, all the time the community was clamouring about Tether running a fractional reserve, they were actually fully capitalised).
There are now two scenarios:
- We form a double top here, in the $5,600 region, and head lower. This could bring prices back to support at $5,000, or potentially back into the $4k range. After that, there would naturally be questions about revisiting the lows of $3,100 or the 200 weekly moving average – but that would be some way down the line.
- We push upwards into the heavy resistance that exists in the $5,700–$6,000 region and above. Should bitcoin close above $6k, and ideally $6,300, this would prove extremely bullish.
Both scenarios are possible, of course, though we are leaning towards the more bearish one – for the simple fact that markets tend to follow broad overall patterns. It is quite natural that there should be a pullback after such strong gains, and approaching such heavy resistance: traders will be cautious and there will be some profit-taking. There is bearish divergence on the daily chart, with RSI (momentum) heading lower as price moves higher. A (bearish) head-and-shoulders pattern that was forming on the daily may now have been invalidated by the last green candle, but we will keep a close eye on it – should the right shoulder form then it would signpost a leg down.
Against all this, we are clearly seeing bullish sentiment from all quarters. Shorts are climbing, which shows traders are looking to profit from a downward move but also opens the door to a short squeeze – pushing the market up into that critical band around $6,000. We are currently trading above the 50-week moving average. Closing the week above that would be positive.
TL;DR it’s a very exciting and critical time. Don’t get caught by the unexpected moves the market will undoubtedly make. Ensure you are prepared for bitcoin smashing $6k or heading back to $4k.
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