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Bitcoin Has Bounced: What Now?
After a few weeks of anticipation and a rather traumatic November, it appears as though Bitcoin has finally gained some life within it, posting sustained gains in consecutive days for the first time since November 10th-11th.
Given this new change in price action, let’s go ahead and check out the Bitcoin price charts to see what we can make of the recent price action.
Bitcoin Price Analysis
For the time being, it appears that $3.6k/$3.7k has held itself as the short-term bottom for Bitcoin. Since reaching that point, the price has appreciated approximately +15%, which is fairly substantial.
Visually, it seems pretty clear that there is a resistance point at $4.2k.
This also matches the major support point that we identified at $4.2k a few days ago when we looked at the Fibonacci Levels on the weekly resolution for Bitcoin (using the price of $200 from 2015 as the starting point).
Check out the charts below:
Now check out the Fibonacci Levels once more (weekly resolution):
In the picture above, you can see how the price is nudging right against that 78.6% retracement point.
Let’s zoom in for a second to get a better view:
The chart was brought back to the daily resolution and then zoomed in, in order to give a better view of how the price is interacting with this Fibonacci Level (the Fib is still plotted from the weekly resolution).
As we can see, a break above $4.2k with a daily candle that also closes above that notch would be very meaningful.
If we look into smaller time frames, it appears that there was already a breach of this major resistance point, and now the price is re-testing $4.2k. However, we can not make this determination for sure until we see the price truly exceed the $4.2k mark by a sufficient margin.
What we can also observe is a mini-double bottom formation that appears to have been created on the H4 resolution.
Potential Double Bottom Chart Formation (H4 Resolution)
This is a chart of the price action for Bitcoin on the H4 resolution:
It appears that all of the trademark features of a double-bottom formation are present on Bitcoin at the moment on the H4 resolution.
We can see:
- Both ‘bottoms’ are roughly the same price
- The neckline is approximately equidistant (timewise) between each bottom.
The approximate distance between these two bottoms and the neckline of the formation is approximately $370 (10% appreciation):
Conventional trading theory states that we are to add this amount ($365) to the price of the neckline (approx. $4k), in order to get our target for the completion of this pattern.
That would land us at roughly $4.3k, which is where the price is currently at the time of writing.
Therefore, this is something that is no longer in play. However, that does not mean that the price of Bitcoin cannot continue to appreciate. We just wanted to address this chart formation on the H4 resolution and clarify some of the expectations behind it.
Resistance and Support Points
In this chart, you can see the major resistance points for Bitcoin in the case that this positive price action continues:
As you can see from the chart above, the major resistance points are at the following price for Bitcoin:
- $4.2k (where it is testing currently).
Plotting support points is a bit more straightforward because of how recently they were established by Bitcoin’s price action:
The first support point is obviously where the neckline of that double-bottom formation on the H4 resolution was established (approx. $3.9k-$4k), and the second support point is at $3.6k (the price of the two bottoms).
If Bitcoin were to fail to breach the resistance that it is currently trading against, then a return downward to test the first support would be more than likely, before a re-test of the overhead resistance or a further drop downward to the second support point outlined in the previous chart.
Reading Other Major Indicators
In order to get an idea of whether Bitcoin will break through the current resistance point that it is at or return to re-test the neckline support of the double-bottom established on the H4 resolution, we’re going to take a look at some other indicators on the chart to see if we can get a better idea of how much momentum is behind the price and whether it still has more ‘juice’ or if it is running out of ‘gas’.
Zerononcense Double Guppy Channels
First, we’ll take a look at the Zerononcense Double Guppy Channels. For those that are unfamiliar with this indicator, it trades similar to the Donchian channels whilst also marking out several point of resistance (via EMAs and other MA types), while giving trend confirming signals as well.
Here is a screenshot of this indicator’s reading on the H4 resolution:
As we can see in this chart, Bitcoin’s price is pretty over-extended on the H4 resolution. Generally, when extremes like this are detected by this indicator, it is almost a surefire signal that there will be a reversal (could be moderate), before a continuation or the establishment of a new reversed trend/breaking the former one.
For those unfamiliar with this indicator, it is another custom creation of the Zerononcense brand and it is read the same way as Bollinger’s Bands, except there is a different calculation for them.
This indicator is also showing a very possible over-extension in Bitcoin’s price action on the H4 resolution; something worth taking note.
Zerononcense Reversion Ribbon V2
While this indicator does not directly signal an over-extension, it does show us that the price action has triggered an ‘extreme’ in buying momentum over the past few periods on the H4 resolution.
This is typically not sustainable for a very long period of time.
However, the bars on the Histogram have shown consistent divergence in the ribbon, period over period, for the last 9 periods and that’s worth noting.
Zerononcense Balance of Power RSI
The purpose of this indicator is to show us the fluctuation in buys (accumulation) and sells (distribution) on a momentum scale so that we can get a better idea for when there is an extreme in either.
Let’s check out the chart below:
In the chart for this indicator, the red line means that the buying is currently at an extreme and beyond the normal range for accumulation cycles on Bitcoin on the H4 resolution.
The takeaway from that indicator reading is that there is a frenzy of buying/accumulation for Bitcoin right now. As to how long that will last is anyone’s guess; that is up to the market’s to decide.
Relative Strength Index(14)
This is a picture of the RSI(14) on the daily chart for Bitcoin:
In the RSI(14) chart, we can see that its tripled over the 8-day period that’s been isolated, which is notable.
However, when taking the actual calculation of the RSI(14) into consideration along with the tremendous downward price momentum over the last two weeks, even a very moderate bounce in the price will result in substantive gains in the RSI(14)’s reading. So, we must take this with a grain of salt.
It’s also worth noting that the RSI(14) is close to the overbought point on the H4 resolution as well, corroborating our other indicators which suggested that the upward pressure in momentum is nearing an extreme if it is not there already (in the short-term).
This is a short-term price outlook for Bitcoin, not long-term. So, what is written here should not be considered something that is indicative of the price action over the next few weeks. This is idea is more applicable to what we consider to be the case over the next few days at most.
We will re-evaluate soon. For the time being, we anticipate that the price of Bitcoin will more than likely test the first support that we identified, with a potential to break down to the second support.
Given the volatility of the asset/currency at this point in time, we’re going to refrain from putting up any specific trading idea on this currency as of right now. This idea will be updated as things change.
Disclaimer: Nothing written about should be construed, perceived or accepted as financial advice. This is not written in advocacy of any personal finance strategies. Your decisions are your own and the author assumes zero liability for the outcome of those decisions. The author has zero conflicts of interest currently to disclose and is not currently an owner of Bitcoin or any other rival currencies at this point in time in accordance with SEC regulations and guidelines.