The Bitcoin price has fallen below a significant support area and validated it as resistance. As long as BTC remains below $7600, the outlook is bearish.
During the previous week, the Bitcoin price initiated a rally which caused it to increase by almost 20 percent. However, once it reached $8000, it began to decrease and finished the week below a significant support area.
This has given several traders the belief that the outlook for Bitcoin remains bearish. Well-known TradingView analyst @magicpoopcannon stated this — while outlining the fact that the price has dropped below the neckline, 50-week MA and the 61.8 percent retracement level.
You see that? BTC is currently dipping below the head and shoulders neckline, the 50 week MA, and the 61.8% retrace – all things I've been warning about. Too much time under here could generate panic selling. pic.twitter.com/wTRUFyaaku
— MAGIC (@MagicPoopCannon) December 4, 2019
He finished the tweet by stating that a “prolonged period of trading in these levels could generate rapid selling.” Let’s analyze each of the claims closely and see how likely they are to be validated.
Head and Shoulders Neckline
The neckline refers to a head and shoulders pattern. We analyzed this pattern during the previous week here.
We don’t like this pattern for several reasons:
- The pattern is extremely uneven. Both shoulders have different heights and duration.
- The duration of the head is more than 3x that of either shoulder. Neither of them can be drawn properly since the Bitcoin price often moves out of the outlined portion of the pattern.
- The Bitcoin price has broken down from the neckline, moved up, and is in the process of moving down again. This makes us believe that the neckline is not valid — since the price is not reacting to it at all.
Therefore, while the Bitcoin price is indeed dropping below the neckline, we do not think this is a valid development worth keeping an eye on.
Bitcoin’s 61.8% Retracement
If we use a Fib retracement tool from the December 2018 low of $3280 to the June wick high of $13,764, we can see that the Bitcoin price is in the process of moving below the 0.618 Fib level.
However, the Bitcoin price has not reacted to any of the Fib levels. The original decrease in September fell way below the 0.5 Fib level, and the second one in November fell below the 0.618 level. Therefore, since the price has not previously reacted to these levels, the should not hold importance.
A better way to use the Fib retracement tool would be to measure from the April low of $4000 — when the rapid upward move began to the weekly closing prices of $11,500.
As we can see, the Bitcoin price has reacted to the 0.5 and 0.618 levels as support, and the 0.382 as resistance, making these levels more valid. In this version, the price has yet to reach the 0.618 fib level — which it can possibly use for support.
50-Week Moving Average
The Bitcoin price used the 50-week moving average (MA) as support in September/October. Afterward, it broke down, before validating it as resistance. This is a bearish development since the price increased above the MA but failed to reach a close.
Additionally, the MA coincides with the $7400-$7600 area — which previously acted as support.
Therefore, the Bitcoin price has broken down below significant support and validated it as resistance. This suggests that further price decreases are in store.
To conclude, Bitcoin presents a bearish outlook in the medium/long-term. This is given by the fact that the price has broken down below a significant support level and validated it as resistance. The possibility of a head and shoulders breakdown however seems far fetched.
Disclaimer: This article is not trading advice and should not be construed as such. Always consult a trained financial professional before investing in cryptocurrencies, as the market is particularly volatile.
Images courtesy of Shutterstock, TradingView.
Source: Be In Crypto