Outlook For Bitcoin Remains Weak

 | Jan 10, 2022 12:20PM ET

As this is my first post of the new trading year, I thought it would make a change to start with an analysis of Bitcoin which has been having a torrid time over the last few weeks and the holiday period, to see what we can glean from the slower timeframes, and to give us a perspective on where the cryptocurrency may be heading next.

The charts are of the January futures contract on the CME.

If we start with the daily, what’s clear from the price action of October and November was the creation of the double top just below the $70,000, and the most revealing volume and price action here occurred in the middle of October. Note the two up candles of 19th October and 20th October with the explosion of volume and clearly anomalous compared with previous benchmark candles and volume. Both are cases where effort and result are in disagreement (Wyckoff’s third law). Clearly, on such an injection of effort, we should have expected to see a significant rise in price, which was not the case for either, resulting in only a modest move which was immediately followed by heavy selling on the 21st of October.

The rally into the early part of November looks weak with volume falling away as the second top develops with the bearish trend then picking up momentum, passing through the VPOC at the $58,000 region and denoted with the yellow dashed line, and on through the low volume area on the VPOC histogram between $56,000 and $50,000.

Note the trend monitor at the bottom of the screen, which has remained steadfastly red throughout, and as each attempt to rise fades, so the next leg lower develops. Also, the confirmation volume on the widespread down candles, with only yesterday’s weak buying suggesting a pause point at the $41,755 level with the wick to the lower body, as we approach the level of late September, which triggered a strong rally. Will we see the same again? Let’s turn to the weekly chart and see what it is signaling.