As established prior, it definitely appears as though a Double-Top pattern has emerged for bitcoin. This pattern is visible on just about every timeframe from 4 hours on upward.
What can be seen currently on the 12-hour chart is the consistent retesting of that neckline point at $9,500. See below for an illustration of where the neckline of BTC-USD is at for this double-top formula.
Just as a reminder, this is on the BTC-USD 12-hour chart (Bitfinex)
Also, here’s an illustration to reiterate how the double-top formula usually functions in an environment like this.
Here’s also a rating of the double-top pattern in terms of its likelihood to be a successful indicator of future price movement:
Thus, we should consider the $9,300-$9,500 mark to be the ultimate battle of the bears/bulls. A strong push above that point with any sort of volume behind it could mean that the double-top that we saw is effective dead. However, if the price bounces off of its current resistance ($9,300-$9,500), then the market should brace itself for much deeper lows.
The author would personally recommend refraining from making any strong long/short maneuvers until it can be clearly observed which direction that the price is traveling. Determining the next direction may mean waiting until the next 8/12-hour candle forms on the chart first.
Recent volume has been in an uptick recently. However, this is also correlated with the mass increase in selling volume. Thus, based on our volume studies, that correlates with definitive price action moving south (lower).
Here’s the excerpt posted below of the volume studies that we learned about prior:
So, the death cross (EMA 200>EMA 50) remains in tact at this point in time as well on the 12-hour chart and the price is well below both the EMA 200 and EMA50. So, the market is nowhere close to “recovery” or a bounce at all.
In fact, what is going on looks more observable as a ‘dead cat bounce.’
Eight consecutive red candles from $11,700 all the way down to $8,300 at its lowest represents a 40 percent decrease in price in under a week. It is more than likely that a lot of individuals have closed the short positions that they opened up earlier to lock in profits or out of skepticism that the market has ‘bottomed out’. Hence, the price rising or “bouncing” after hitting the $8,500 resistance point.
Let’s take a look at some other indicators:
The Bollinger’s Bands reflect that the price was due for a correction of some sort sooner or later.
Here’s the MACD for the 12-hour chart. That slight curve that you see on the MACD (blue) line usually indicates a price that is getting ready to head back upward. However, if the next 12-hour candle is red (long red candle), then this line would definitely straighten out.
It’s worth noting that the last few lines produced by the Histogram are becoming smaller, meaning there is less divergence between the two lines. This means a potential cross could be imminent, although that price could also be short-lived as well.
Overall though, the MACD is still showing a firm sell.
Downtrend pressure (red line) decreasing, but so is the uptrend (green line) as well on the Aroon’s that we see here.
The Aroon Down > Aroon Up still, which is a classic signal of a downtrend.
Balance of Power (smoothed over with an EMA (9)), in the negatives overall. However, the unsmoothed value is well into the positives at this very moment.
Williams %R is nowhere near close to emitting a buy signal. Although it has retreated from the oversold zone that it was in previously (black bars beneath the huge, purple rectangle).
The Chaikin Money Flow (CMF) smoothed over (HMA (9)), showing a massive exodus of money flow from bitcoin over the last few weeks. Definitely not a positive correlation for anyone looking for an uptick in the price.
This is one of the earliest indicators of a reversal and it looks like the money was flowing out of bitcoin way before the recent 40 percent decrease in price.
Average True Range: This is an indicator that is used to represent volatility. Whenever there’s a spike in this indicator during a bear market (which we’re in right now), you can consider this is a sign that there will be a downtick in price. Whenever the ATR is going down (lower volatility), that has usually signaled that BTC-USD specifically is gaining in price.
So, keeping an eye on this indicator is crucial.
None of the indicators overall are signaling anything that should make a trader feel as though there is an ‘imminent’ reversal taking place or that the green candle that is being posted on the 12-hour chart will be sustained in any way.
In the author’s personal opinion, what’s going on is more of a consolidation period, if anything, before the market continues downward. It’s important to remember that bear flags/pennants as well as dead cat bounces are all continuation patterns, which means that they are slight breaks in price direction before it continues on its path.
It remains to be seen what will truly happen, but at this point, it looks like there is a strong possibility that bitcoin will soon continue downward to much lower levels than what we’re seeing currently. On it’s next trip downward toward $8,500, it may break south of that mark definitively. Given the finicky patience/hands of investors in the market currently, this could precipitate ‘panic selling,’ which will depress the price even further.
Disclaimer: Author does not own any bitcoin currently and does not believe in the Mt. Gox theory that they are purposefully flooding the market downward or that the selloff of bitcoin is flooding the market in anyway.