Summary
As our regular tweets have stated, Bitcoin had rallied over $21,000 since the July low into an area of overhead supply that led us to our short term target of between 50,000 and 51,300. We have referred to that supply as the “spring time bag holders” who are happy to at this point to get out with less of a loss than if they sold at the lows. That said, we are sure a large number of investors were shaken out of their positions in late July.
 After the month long rally into the aforementioned area of supply we are not surprised to see a period of consolidation or price retracement. We continue to believe that although minor support at the Kijun Span (44,000) will offer a measure of short term support, 42,300 looks more likely the downside target for this pull back. What follows is a multi-time frame analysis that leads us to this technical thesis.
Weekly Time Frame
The chart above reflects the longer term price action that gave us confidence that at the very least a significant low had occurred. Although in late July we were concerned that if sellers keep their shoulder at the door of support in would give way the triple bottom held. During the last week of July Bitcoin rallied sharply and there was a sharp reversal of down side momentum at witnessed by the turn in the Fisher Transform (yellow circle) which was followed by a turn in MACD (green circle) back into positive territory above its signal line (please see our multi-chapter Technical Tutorial on MACD for those interested in learning the application of the momentum indicator). Bitcoin’s ability to bound first through potential resistance at 38.2% retracement level after a brief rest and through the 50% retracement level gives us confidence that the all-time highs will be challenged.
Daily Time Frame
The daily chart shows in much more detail why we considered after the month long advance why Bitcoin would likely stall at the 50,000 to 51,300 level.
One of the most misused declared technical terms in technical analysis is a “head and shoulders” price pattern but the period between February and the middle of May was nonetheless a period of distribution whatever moniker one uses.
Investors who were buying during that period and were not part of the group selling were what we refer to as the “spring time bag holders”. Those buyers are likely still licking their wounds if they weren’t shaken out at the lows. It no surprise that the advance off of the lows has stalled as they can be heard saying “let me get out with a smaller loss”.
When the short term high at our target level and prices began to turn lower we added the Standard Pitchfork (red P1 through P3). Thus far the Median Line has held as support (red dotted line) and prices remain in the upper channel. That said we expect that more time and a potentially deeper price pullback may be needed before the attack on the band of price resistance and eventually the all-time highs resumes. We now mark short term support at the Kijun Span (44,000) and second at Fibonacci 38.2% retracement level (42,300).
240-Minute Time Frame
When prices reached our target level and turned lower we added the Schiff Modified Pitchfork (gold P1 through P3). The pullback from the recent highs slowed yesterday at the Lower Parallel of the Pitchfork and Bitcoin has rallied but has stalled at the Median Line (gold dotted line).
At the very least the price action since we chose the Schiff Modified version of Andrews Pitchfork was correct as it marks the price and time vector. It also is tracking the angle of the Clouds assent. If support at the Lower Parallel of the Pitchfork is violated a test of short term TDST support at 44,165 is likely in the cards.
Resources and Learning
To learn more about the tools I use to develop my technical theses in crypto currencies and other financial markets, follow the link below for a brief tutorial. The tutorial is titled “Tools of Technical Analysis”.
https://www.themarketscompass.com
Follow the link below for an exclusive 30-day free trial of Optuma’s Charting Software:
https://www.optuma.com/TMC
