It’s set to be a big week, one way or another – and possibly both.
After a move to the downside on Friday, bitcoin has put in a new yearly low just above $3,200. Since then, the price bounced by 10% but failed to make further gains. Instead, it stalled around the $3,600 mark and is now heading back lower. Last week we noted that BTC was in a falling wedge pattern, and it’s now back inside this channel – having dropped out of it and then bounced back but proved unable to escape to the upside.
It is no surprise that $3,600 proved impossible to crack, or that the bounce from $3,200 occurred in the first place. $3,600 was the previous yearly low, and was then established as support; when the price dropped below that level, it became new resistance.
In terms of the sharp moves upwards we’ve seen, these are also to be expected. They are relatively significant price movements, but on low volume, and they fail when they hit resistance. These are absolutely characteristic of a strong bear trend. Shorts pile up and whales love to squeeze them; traders with stop losses set too low find themselves liquidated, the price shoots upwards, and then stalls. Even with such strong bearish sentiment, you will always get reaction rallies, temporary relief, and short squeezes. They are not supported by volume. When a move is decisive, convincing and permanent (or long term), it will be backed up by a massive volume candle: that’s what reversal looks like. These little rallies aren’t even close.
Until such time as that happens, do not be fooled. These short squeezes just set the market up for lower lows, and that’s what we’re expecting to occur in the few days – if not sooner. We’re trending downwards in that channel, and sooner or later it’s going to retest $3,200. If – and we believe when – that breaks, then we’re very likely to see yet another major move to the downside.
We’ve written a few times now about capitulation and where the price may bottom out in this market cycle, but this can only ever be guesswork. Do not believe anyone who says they know for sure. It could be higher or lower than the ‘experts’ state. Price may briefly fall dismayingly low, only to recover just as quickly and leave many traders badly burned. We also cannot know exactly when this will happen. It looks like a large downside move is being set up right now, though this is only based on probabilities: there could be a large move upwards, squeezing all those shorts and destroying a bunch of traders before we head back down. Markets are uncertain and bitcoin is very risky – especially now.
What we do know is that:
- The trend is bearish, and recent developments have been even more bearish.
- Bitcoin market cycles have historically ended with a bang, not a whimper – both at the top and at the bottom. That ‘capitulation’ move has high probability, just as the parabolic top was likely.
- Markets always keep traders guessing in the short term, and none more so than bitcoin.
With that in mind, we’re setting buys at $2,500 down to $2,000, with a skunk order a little lower just in case we can catch a flash-crash or a wick. When the next major move is completed, we’ll be able to evaluate the situation again and update our strategy – and figure out whether the bear market is over or has another stage to go.
TL;DR Do not be fooled by the short squeezes. Do not sleep, or at least try to sleep within four-hourly candles. Do not panic. Tomorrow’s bitcoin millionaires will be made from today’s market crash.
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