by Jamie Holmes
Bitcoin hit its lowest level so far in May 2018 near $7,000, establishing a new low for the fourth week in a row. The long-term outlook shows shifting momentum in favor of bears that could see a large decline toward the 2018 low and even new lows for the year.
The Weekly Outlook for Bitcoin
The weekly chart for BTC-USD on the Bitstamp exchange, shown below, gives two clear bearish signals for bitcoin for the week beginning May 28.
On May 28, we saw the price action move below the previous week’s low at $7,213.09, triggering the bearish saucer signal on the Awesome Oscillator (AO). Also, we see the lagging line (purple) moves below the previous price action, for the first time since spring 2015.
Firstly, there is large significance to the bearish saucer signal in the author’s opinion, as on the weekly timeframe, opportunities like this are not found very often, e.g., in 2017, we had four bullish saucer signals on the weekly chart (zero bearish saucer). The difference between the two is the sign of the AO (positive or negative).
For the week beginning May 28, the AO is at -1196.93, breaking below the oscillator’s previous red crest from late April.
The last time the bearish saucer signal was triggered for bitcoin on the weekly chart was during 2014. In fact, there were three occurrences.
The first bearish saucer was like the current situation presented above; the markets are suggested to be in equilibrium (inside the Ichimoku cloud) and the bearish saucer signal is triggered, with a large downward move follows due to the strengthening momentum.
The chart above shows the price for bitcoin between late 2013 and early 2015. We see that the first bearish saucer was triggered late July 2014, with BTC-USD moving below $595.51. The bearish saucer signal was triggered twice more, with both giving profitable moves into the downward trend, and before bitcoin eventually bottomed out at $152.40.
Of course, the future is not always like the past, but these situations are too similar from a technical standpoint, ignoring fundamentals, they are the same trade. Sure, fundamentals are much stronger today, but the price and market structure are telling us that further downside is needed. Hence, the AO signal is an early warning that the bitcoin price may be suppressed further.
Traders should monitor the color and magnitude of the AO; if it remains red and continues to go deeper into negative territory, any short positions should not be closed, while if the AO changes color and/or starts to move higher, we may want to consider closing short positions.
Therefore, bitcoin is at a critical junction, either the cloud holds as support or it breaks through, marking the beginning of a long-term downtrend and echoing the price action following the previous run up, which saw bitcoin shoot up over $1,100 to eventually bottom out around the mid-$100’s.
Lagging Line Confirms Downtrend, Watch for Cloud Breakout Next
Secondly, we see that the lagging line (purple) of the Ichimoku indicator gave a bearish signal on the close of the session ending May 27. The lagging line has moved below the price action 26 periods back, suggesting a downward trend is just now being confirmed.
The week ending May 27 also saw the market close below the conversion line (blue), giving another sell signal. Finally, the Ichimoku can glean some more information about the likelihood of the BTC-USD exchange rate reaching certain levels. For instance, we see that the current price action is now contained within the Ichimoku cloud.
The weekly chart below shows that the lower span of the cloud lies at $6,271.50, so we should anticipate support around this level. The purple box shows a strong support zone aligned with the lower span of the cloud and the fractal support from late March 2018 ($6,427.16).
A weekly close above the upper span of the cloud, i.e., above $7391.99, could be a possible bullish scenario, but a slow drift toward $10,000 is probably more likely, after a period of further down/consolidation. As the chart below shows, the Ichimoku cloud suggests long-term equilibrium around or above $10,000 for the rest of 2018.
Other important supports to keep in mind over the long-term are $5,920.72 (fractal low) and $5,870.03 (open of bullish Marubozu variant, Nov. 13, ‘17.)
The ‘record session’ count is also show on the weekly charts. Bitcoin posted a fresh high during the week of April 30 just under $10,000. However, three weeks passed with no test or breach of that high, so the count has turned in to a ‘record low’ count, instead of a ‘record high’ count, with bears swiftly taking the upper hand, with the current week the fourth ‘record low’ or near consecutive lower low.
Remember, after seven to ten record sessions, bulls/bears are very likely to be exhausted and we can look for a major change in trend.
With the fourth record low in play, we could see a prolonged period of selling pressure until the week of June 18, 2018, at the earliest, using the record session count. At latest, September 29, 2018. However, if we observe three weeks in a row without a new low, the count is restarted and a chance for a bullish redemption may present itself.
Over the short term, important supports lie at $7,000 then $6,834.1,7, which is the open of the bullish Marubozu variant from mid-April shown by the 4-hour chart below.
A sustained break over $7,213.09 would be considered slightly bullish, with a possible resistance just under $8,000, as indicated by the upper span of the red cloud.
Disclaimer: The author hodls some bitcoin and a leveraged short position was taken near the trigger point of the bearish saucer described above on May 28. This article should not be taken as investment advice, and readers should always do their own research. Only risk what you can afford to lose, if and when, you choose to trade the markets.