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Friday Inferno market update

Friday Inferno market update

Analysis

TL;DR we’re waiting for resolution of the channel, with a bearish bias.

 

Bitcoin price action has remained within the same channel that BTC has traded within for the past 5 weeks now. A glance at the daily chart is enough to give a clear picture. Price has been trending downwards since the spike up to $13,880, with a series of lower highs and lower lows. This is medium-term bearish, and it’s now quite clear that the last month or so has been a corrective wave after the parabolic run-up of Q2.

 

The $10k line was reclaimed on Thursday, only for bitcoin to falter again overnight and fall back beneath it. That put in another lower high. What we have not yet seen is the lower low to go with it. At present, bitcoin is trading beneath the 50 DMA, and the bottom of the channel coincides with the 100 DMA, around $8,700.

 

For the last month, we have alternated red and green weekly candles – starting with that extremely (short-term) bearish shooting star doji candle as BTC corrected sharply from its $13,880 high at the end of June. At present, it looks like that pattern will continue, with a red candle this week. However, we are fairly confident that this correction is simple a temporary and much-needed – indeed healthy – response to the market getting overheated.

 

In previous bull runs, bitcoin has frequently corrected to the 21-week EMA. This has not yet occurred, but this key EMA is rising quickly to meet price. Thus it may be less of a question of BTC dropping to the line, than the line rising to meet bitcoin. Still, this could take several weeks at least to play out, and we certainly do not rule out further falls. This would not be overly concerning, since the bull trend will remain intact even if BTC drops to $8k (the current level of the 21-week EMA). A look at the last cycle and bubble shows that bitcoin loves these 30-40% corrections – you can see at least two in the months prior to the run-up to $20k.

 

One last factor to mention is the futures gap. We’ll post more on this tomorrow, but the gap lies around $8,500, and gaps in markets love to close. Given the coincidence of channel bottom at $8,700 (at present), 100 DMA just beneath (and rising), the futures gap around $8,500 and the fast-rising 21-week EMA ($8,100), we can see there is likely to be a lot of support in the $8k range.

 

That’s not to say the corrective wave will end in the $8,000s – only to say there should be a lot of supply soaked up there.

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