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Friday Inferno market update

Friday Inferno market update

Analysis

A consolidating triangle is set to break, and the result could be exceptional – one way or the other.

 

Bitcoin has seen plenty of volatility over the past few days, with large swings up and down. In the last 10 days we have seen prices as high as $8,391 and as low as $6,178. We’ve seen what appears to be a double top, with the succession of lower highs very clear on the 1-hour chart; conversely, we’ve also seen a strong recovery from the fall to $6,200, with excellent demand below $7k. When a trader dumped 5,000 BTC on Bitstamp, traders took it as an opportunity, soaking up demand and driving the price back up by $1,000 in a matter of minutes.

 

And so here we are, with bitcoin sitting around the $8k mark, oscillating around that line. A roughly symmetrical triangle can be seen on the 1-day chart, starting with the parabolic move that happened a couple of weeks back. The top of that triangle is around $8,100 at this point, or the bottom around $7,500.

 

We can expect a breakout soon, and when it happens, it will likely be epic. Moves that happen on the breakout from such triangles tend to be as large as the starting height of the triangle – in this case, around $1,500. That would take bitcoin to almost $10k – call it a round $10,000, since traders love round numbers – assuming it breaks up. If it breaks down, then we’d see more like $6,000.

 

The thing is, either is possible. We have technicals pointing in both directions. The parabolic run-up begs for a correction, and there is bearish divergence on the 1-day chart. RSI is overbought on the weekly. On the other hand, the trend has been strong, there is a lot of buzz around bitcoin at the moment thanks to Consensys, Fidelity, Facebook and other events.

 

If bitcoin corrected to $6k and held that level (as seems quite likely), it could be extremely bullish. At the moment, bitcoin feels overextended. Markets love to retest old support, and $6,200 is the strongest support bitcoin has ever had. If that happens, it will be a huge fall from where we are now, at $8,000. But it will set bitcoin up for an enormous move to the upside afterwards.

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