Bitcoin Technical Analysis: Dial "M" for Murder
Bitcoin price pulled back 6.5 percent today, largely on a technical M double top breakdown, but a People’s Bank of China (PBOC) announcement aided in the drop. Although the announcement was certainly better than previous announcements, Chinese exchanges will remain under strict supervision. An outright bitcoin ban from the PBoC at this point seems very unlikely.
With the pending SEC COIN ETF decision expected on (or before) Friday, we can expect increased volatility leading into the weekend. Unlike Forex and other legacy markets, Bitcoin markets are open 24/7, which will allow for trading even at the end of business on Friday, should the decision be announced late in the day.
Also on Friday, OKCoin futures contracts will settle at 8AM UTC, which in the past has also called for increased volatility around the closing or opening or weekly, biweekly, or quarterly contracts.
The M double top can be easily seen on the thirty minute time frame. An “M” signifies “Murder” or an imminent pullback from a top, whereas a “W” signifies “Winner” or an imminent bounce from a bottom. Although this may seem retrospective, as the second top fails to make a higher high, a short is viable with a tight stop just above the second local high.
Price found support in a previous resistance zone and had an automatic rally to the 0.618 fibonacci retracement level.
Over the next few days, we should expect an Adam & Eve double bottom to form, leading into Friday. This pattern is named for the sharp ‘V’ formation following a rally from a pullback, and a second pullback at horizontal resistance with a smooth ‘U’ formation. A break of the horizontal resistance should yield a measured move target of ~$1300.
On the daily time frame, it is also apparent that price found support in the $1150-$1200 zone, which previously was resistance. There was also a large bearish divergence on the Relative Strength Index (RSI) which is an oscillator that measures momentum in price. A new higher high in price followed by a lower RSI signifies weakening bullish momentum in price action which suggests a pullback.
Lastly, bitcoin price remains above gold parity, coincidence or not. Not until the price of bitcoin stabilizes above the price of gold for a few weeks can we be (somewhat) sure of the significance of this marker, assuming it matters at all.
1. With OKCoin futures settlement early Friday morning and an SEC COIN ETF announcement likely by late Friday, expect increased volatility on Friday leading into the weekend.
2. Price broke down largely due to a technical pattern including an M double top and bearish divergence on the daily timeframe. This technical resistance was aided by a PBoC announcement which was surprisingly mild compared to previous regulatory decisions recently.
3. Currently, half of an Adam & Eve double bottom has formed. Should it complete, expect a target of ~$1300.
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