Chart Of The Day: Bitcoin Could Be Heading Higher Before It Tumbles Much Lower
Investing.com | May 09, 2022 09:29AM ET
Bitcoin has been falling since last Thursday, the day after the Fed's most recent rate decision. The largest cryptocurrency by market cap seems to be flailing—both as a safe haven asset, and even, some would say as a viable currency.
Since its Mar. 29 closing peak of $47,424, when the Russia-Ukraine peace talks appeared to be progressing, Bitcoin has lost 29.6%. During the same period, gold slipped by a mere 2.4% and the dollar gained 5.7%.
So, which asset class did Bitcoin's slump match in terms of relative magnitude? That would be the risk assets known as stocks.
The S&P 500 Index lost 11% of value during the same period. An even better gauge is the Nasdaq 100, home to high-profile tech shares, which seems appropriate as Bitcoin enthusiasts consider the digital currency edgy and, like big tech, something that revolutionizes our lives. The NDX lost almost 17% during that time.
So, it would seem that Bitcoin actually correlates with stocks that fell the hardest. Moreover, the digital token peaked with stocks, cementing the positive correlation the two asset classes seem to possess.
As readers know, we have been bearish on Bitcoin for quite some time, frequently reiterating our message that the digital currency is heading for $30K and perhaps even lower. After nearing our initial target on Jan. 23, the most popular token could now finally hit our target and possibly slump even further.
Bitcoin opened 0.9% lower on Monday at $33,611, forming a Falling Gap. This price action occurs when only sellers and no buyers are in the market.
There are quite a few Gaps still in play for Bitcoin. We found a couple of Rising Gaps—which occur when there are only buyers but no sellers— amid the thin US Independence Day holiday trading period from July 4 to July 24, 2021. Both were area gaps, which are generally meaningless. However, today's failing gap may be considered a Breakaway Gap, as it fell to the lowest since July 23, 2021.
The bearish flag did beat the rising channel, with the massive H&S at its back. Now, we're looking at a much larger bearish pattern, which would trigger an even more shocking target than our $30K call last January, back when Bitcoin was headed toward $50K.
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Based on the area visible on the weekly chart going back to 2019, the H&S' implied target is $20,000, but traders will have to complete a much larger bearish pattern if the price does reach that level. A decisive break below the $29K level will have formed a gigantic double top, of which, the implied target will be below zero in absolute terms.
However, considering the potential technological benefits of Blockchain, with apologies to crypto enthusiasts, we wouldn't be surprised if Bitcoin languishes at $10K or even $5K.
h2 Trading Strategies/h2Conservative traders should wait for the price to complete the massive double-top or bounce back to the bottom of the rising channel with evidence of distribution before shorting.
Moderate traders would wait for the same moves but not necessarily for proof that resistance holds.
Aggressive traders could enter a long contrarian position if today's candle forms an Inverted Hammer, as it is doing at time of writing, followed by a long green candle tomorrow, before joining the rest of the market if the price returns to retest the rising channel's bottom. Depending on your strategy, you might want to wait for the price to retest the inverted hammer's low.
Trade Sample – Aggressive Long Position:
- Entry: $33,000
- Stop-Loss: $32,000
- Risk: $1,000
- Target: $37,000
- Reward: $4,000
- Risk-Reward: 1:4
Warning: Bitcoin has proven to be a most volatile and unpredictable asset. Therefore, it's possible our call could be wrong even with appropriate reading of the technicals. Second, even if we're right, the price could bounce off the 2021 lows for another rally before completing the top.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
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