In the latter stages of October, Bitcoin spiked 43% in two days. 43%! The nature of the spike contains some useful information. Firstly, the location of the top.
Notice the Fibonacci levels drawn from the range between the high labelled A and the low labelled B. The high of the spike topped just a whisker over the 0.618 retracement level. This is an extrinsically bearish condition which suggests a reversal. It did provide resistance enough to end the spike, but a decent retracement hasn't really materialised yet. The market has just pulled back a bit and consolidated. Notice also that now the 0.382 level is being used as support. The market has been hovering just above this level for some time now since the spike. This suggests high quality price action which tends to be more predictable. However, as we know, bitcoin and the whole crypto family has a common erratic gene.
Now observe the descending purple trendline. It was constructed by connecting the high at A with the peak which came before A. The recent spike exceeded the trendline but the market has failed on every retest since to close above it. The trendline remains strong. Yesterday was the closest, with the close coming almost exactly on the trendline, but so far today has brought a bearish candle reversing again from the trendline. If this holds, a major reversal could bring prices way back down as far as the low at B or lower if the trend of lower troughs continues.
Draw your attention to volume action. Volume spiked at the same time as price, as indicated by the white arrow and label. This volume extreme suggests the spike was a buying climax which tends to result in a decisive top and a subsequent consolidation phase. Of course, we already know that a decisive top was indeed put in place and the consoolidation has developed. Since the spike, volume has been gradually declining. This shows capital is not being committed during the consolidation. There is a lot of capital on the sidelines waiting for the next significant move in either direction. When the breakout comes, it could have some energy behind it.
A breakout of sorts has to come very soon, probably either today or tomorrow. With the descending trendline converging on the 0.382 Fibonacci level, one of them will have to give. Either the market breaks above the trendline or it breaks below the Fibonacci level. The likelier outcome is breaking below the 0.382 level since the trendline has persisted as a price barrier for a longer period of time and has triggered more aggressive reversals. That being said, sentiment could change very quickly if the market rises above the trendline. That could give the bulls a very big boost.
It's worth being aware that the market action including the spike and subsequent consolidation is forming what may become a bullish pennant pattern. This has some intrinsic bullish sentiment which may have an impact on the coming days. This pattern is small in comparison to other major patterns in this chart though. Patterns of a greater timeframe always take precedence over patterns of shorter timeframes. Watchout for market behaviour around both the descending trendline and the 0.382 level because one of them will be broken and the resulting move could be big. I'm especially interested to see whether the 0.382 level will get broken. A break below there could cause an ugly few days for bulls. Be aware of the forces at play here and adjust your risk accordingly.
Notice the Fibonacci levels drawn from the range between the high labelled A and the low labelled B. The high of the spike topped just a whisker over the 0.618 retracement level. This is an extrinsically bearish condition which suggests a reversal. It did provide resistance enough to end the spike, but a decent retracement hasn't really materialised yet. The market has just pulled back a bit and consolidated. Notice also that now the 0.382 level is being used as support. The market has been hovering just above this level for some time now since the spike. This suggests high quality price action which tends to be more predictable. However, as we know, bitcoin and the whole crypto family has a common erratic gene.
Now observe the descending purple trendline. It was constructed by connecting the high at A with the peak which came before A. The recent spike exceeded the trendline but the market has failed on every retest since to close above it. The trendline remains strong. Yesterday was the closest, with the close coming almost exactly on the trendline, but so far today has brought a bearish candle reversing again from the trendline. If this holds, a major reversal could bring prices way back down as far as the low at B or lower if the trend of lower troughs continues.
Draw your attention to volume action. Volume spiked at the same time as price, as indicated by the white arrow and label. This volume extreme suggests the spike was a buying climax which tends to result in a decisive top and a subsequent consolidation phase. Of course, we already know that a decisive top was indeed put in place and the consoolidation has developed. Since the spike, volume has been gradually declining. This shows capital is not being committed during the consolidation. There is a lot of capital on the sidelines waiting for the next significant move in either direction. When the breakout comes, it could have some energy behind it.
A breakout of sorts has to come very soon, probably either today or tomorrow. With the descending trendline converging on the 0.382 Fibonacci level, one of them will have to give. Either the market breaks above the trendline or it breaks below the Fibonacci level. The likelier outcome is breaking below the 0.382 level since the trendline has persisted as a price barrier for a longer period of time and has triggered more aggressive reversals. That being said, sentiment could change very quickly if the market rises above the trendline. That could give the bulls a very big boost.
It's worth being aware that the market action including the spike and subsequent consolidation is forming what may become a bullish pennant pattern. This has some intrinsic bullish sentiment which may have an impact on the coming days. This pattern is small in comparison to other major patterns in this chart though. Patterns of a greater timeframe always take precedence over patterns of shorter timeframes. Watchout for market behaviour around both the descending trendline and the 0.382 level because one of them will be broken and the resulting move could be big. I'm especially interested to see whether the 0.382 level will get broken. A break below there could cause an ugly few days for bulls. Be aware of the forces at play here and adjust your risk accordingly.