Bitcoin lurches lower – Where to now?

BTCUSD, Daily

2 weeks ago we highlighted the weakness in the Bitcoin price action as it tipped below $9,000, tested the 20-day moving average and was heading for a key previous support zone. We wrote, “Bitcoin, which closed its fifth consecutive day lower yesterday, has been trading under $9,000 for three days and tested the key 20-day moving average for the first time since the rally from the 200-day moving average of October 25. So was the rally a classic Bull Trap, luring in unsuspecting buyers as it has been gradually sold off? Or was the October 25 rally the big “whale” buying that has been assumed?”

The trend continues and the bull trap move has completed. A bull trap is a false signal, referring to a declining trend in any asset that reverses after a significant rally and breaks a prior support level. The move “traps” traders or investors that acted on the buy signal and generates losses on resulting long positions. A bull trap may also refer to a whipsaw pattern. A bear trap is the reverse price action.

Yesterday, the price breached out of the above zone, collapsed through the key 200-day moving average, broke the Daily trend line and tested the October 23-25 low at $7,400. Today, the follow through selling continued, and $7,000 and the key Weekly 23.6 Fibonacci level have been breached intra-day, on what looks like the fourth straight week of losses.

So, where to next? Below $7,000 the Weekly chart has weak support at $6,000 and $5,000 before congestion at $4,000. So as ever, with this most volatile of assets, anything is possible. The shake down this week has been exacerbated by crackdowns in China.¹ “Cryptocurrency exchanges operating illegally in China face a new threat after the central bank announced it would take new steps to uphold its trading ban. In a statement on Nov. 21, the People’s Bank of China (PBoC) warned it was taking action against entities allegedly involved in trading cryptocurrencies such as Bitcoin (BTC).”

On the Daily time frame, the technicals are clearly oversold (RSI at 24, Stochastics at 8 and MFI at 4.8) however, sentiment and fundamentals are in the driving seat, at least for now. Alternatively, the “Whales”² that bid the price up to over $9,500 could be planning their next move, but perhaps not just yet, after such an audacious Autumn move. Time will tell; trends can run and run, and have no fixed length or minimum move distance.

¹https://cointelegraph.com/news/bitcoin-drops-below-73k-as-china-vows-to-dispose-of-exchanges

²https://www.newsbtc.com/2019/10/25/bitcoin-price-smashes-above-8000-in-massive-short-squeeze

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Stuart Cowell

Head Market Analyst

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