by Jamie Holmes
Following the suspension of withdrawals in bitcoin and litecoin by Chinese exchanges, bitcoin has dropped to a fresh low at $913.73 on February 9, but has since recovered to $975.34 at the time of writing on the Bitstamp exchange.
The hourly price action below illustrates that the market is currently testing resistance provided by the conversion line (blue), at $982.86, and the base line (red) at $994.21. If BTC-USD remains below the conversion line, then this will necessitate a bearish outlook over the short term. However, an hourly close above the conversion line will provide a weak bullish signal and justify a bullish outlook.
Also, notice that the conversion line has now moved below the base line, indicating bearish momentum is beginning to dominate. We require a crossover so that the conversion line is higher than the base line to confirm bullish momentum coming back into play.
Therefore, we could set limit sell orders near the resistances provided by the conversion line and base line, with a target of the fractal support formed at $913.73.
Given there is an hourly close above the conversion line, we should look for the market to tend back into equilibrium, as indicated by the Ichimoku cloud in the diagram below. The cloud region currently stands around $1043.50 and $1046.37 but with the price drop, precipitated once again by the People’s Bank of China, the cloud has turned red in color and the equilibrium zone for the afternoon of February 10 lies around $992.33 and $994.21.
Therefore, this suggests that BTC-USD may remain below the $1000 psychological handle, as this area represents a resistance zone. However, the Ichimoku cloud, or Kumo, is very thin, so there is a decent probability that there will be a bullish Kumo breakout. Therefore, we look to place buy limit orders just above the red Ichimoku cloud, that is just higher than $994.21. With this buy position, we would look to target the most recent fractal resistance at $1074.69.
Looking at the 4-hour price action below, we see that the market is also underneath the Ichimoku cloud at this timeframe. However, the cloud remains green in color but a change to red seems imminent, which would confirm a higher likelihood for further downside.
However, notice that the lagging line (purple) remains above the Ichimoku cloud and has bounced from a low of $959.00 and increased to $973.75 at the time of writing, suggesting that bears are becoming exhausted. Also, the conversion line and base line are both flat, which indicates that BTC-USD will be attracted to this level, where both lie at $994.21.
However, momentum as indicated by the Awesome Oscillator is turning bearish, as the indicator turns negative for the first time since January 24. Also, looking at the 4-hour Renko candlestick chart below, we see that a downward trend is in place and sell positions are optimal for market orders. Fractal support lies at $924.84 and $847.77. Also, a break above $1027.60 would signal the formation of a bullish Renko candlestick and provide a strong buy signal. Therefore, we could place limit buy orders just above $1027.60.
The daily chart, displayed below, also gives some indications of where support can be found, and hence, good entry points to buy or sell bitcoin. After breaking above $1000, it seems that bitcoin will now attempt to return to equilibrium/Ichimoku cloud. Notice that the red Ichimoku cloud lies around $890 to $930 for the days ahead. Therefore, traders should be wary if the market descends into this zone. The red cloud will either provide support or if it gives way, BTC-USD will be in for further losses.
Secondly, we notice that the close for February 9 will most likely be below the conversion line, which gives a weak bearish signal and points to a test of the support zone illustrated by the Ichimoku cloud. Also, the base line currently provides support at $941.34. Also, momentum is turning bearish as shown by the Awesome Oscillator, which has turned red.
In summary, the market looks more likely to head lower, returning to equilibrium around the low-$900’s, which should provide strong support. Resistance is seen just below $1000.00 in the short term, so it may be a while before BTC-USD clears the critical psychological level again. A daily close below $890.00 in the days ahead will point to a continuation of the bearish trend.