by Jamie Holmes
The market has failed to see a breakout from the Ichimoku cloud or ‘Kumo’, which suggests that market participants are still deciding on the next direction. Also, the cloud is not forming any upward and downward pattern in the days ahead. In recent days, BTC-USD has been trading within a narrow range of between $428 and $436 on the BitStamp exchange.
The chart below shows that over the new year bitcoin pushed higher to around the $430’s, challenging the resistance provided by the ‘Kumo’ for six days and we have yet to see a breakout. This region of the chart indicates the equilibrium price of BTC-USD. A move out of equilibrium is usually exaggerated but eventually a return to the ‘Kumo’ will occur; many financial time series have the property of mean reversion due to their random nature, and the ‘Kumo’ is a good way to visualize this. For example, it shows the return to equilibrium which occurred after an exaggerated move downwards from $460 to below $400.
Sellers look to have the upper hand as the lagging line has yet to pierce above the Kumo, and a breakout to the downside will occur below $429.43. Bearish momentum could see lows around $426.54, $420.75 and $417.01, support levels indicated by fractals.
Buyers should look to enter the market if there is a ‘Kumo’ breakout to the upside, currently $432.79. Targets will then be $436.00 and $452.03, key resistances indicated by fractals. The chart below shows that the price action broke the minor support provided by the conversion (blue) line yesterday and the market saw a low of $426.54. The price has since recovered to $431.27 and is testing resistance provided by the conversion line at $430.65; a failure to close above the conversion line will suggest that sellers will remain in control. On the flip side, a slightly bullish outlook is given if buyers manage to close the 4-hour session higher than the conversion line.
Traders and investors may want to wait for the close of the daily candlestick to decide on the next move for BTC-USD. The key levels; $427.47 needs to hold and a daily close below this level will indicate bearish momentum using the Ichimoku system. On the other hand, a daily close above $435.40 will give a higher possibility of an extended upward movement.
The short-term outlook is illustrated with the chart of the 15-minute price action below. The price action is above the Kumo after breaking out to the upside earlier today. Although the Kumo is green, it is not trending and there is an indication of bearish momentum. The base (red) line is above the conversion line and both offer support around $430.70-$430.90. A break below $430.70 would see a test of the support at the Kumo and a test of the recent low of $426.54.
On the other hand, to validate a bullish outlook the price action needs to remain above $431.25, and further confirmation will be given if the price action closes above $432.67. Also, a switch from bearish to bullish momentum in the short term will be indicated when the conversion line moves above the base line.