Market Commentary (BTC):
There is no doubt that the seismic event that was the Microsoft news, and the price action that followed, have kept both bulls and bears at bay for most of the remainder of the week. Bulls are right to be encouraged by the announcement because, in our opinion, it is one that has broad, long term positive implications for the future of bitcoin and it’s economy. Conversely, the bears can take solace in the fact that the news caused a relatively muted rally (particularly when compared to the PayPal rally) that has since morphed into a continuation of the sideways chop that has characterized bitcoin price action over the past few months.
With all that in mind, price really doesn’t care about news like humans do, so it is no surprise that bitcoin was already back trading in familiar bearish patterns immediately following the event. Given a failure to breakout above the highs of the week and the lack of a breakdown below the pre-Microsoft lows, paired with a holiday season that is quickly approaching, it appears as though the recent sideways trend is firmly in place for the holidays.
Market Analysis (BTC/USD):
Weekly Log Chart: Back to the weekly log chart for the long term view of the bitcoin price, although today we expand the timeframe slightly. The continuation of the flat correction off of the 1163 $ high is still in full effect as the extended consolidation has yet to fully run its course, and seasonality is a headwind.
Getting to the technicals, the downtrend line off of the ATH and the long term uptrend line continue to converge, while at the same time the 100day MA remains a point of attraction. It is also important to note that the most recent low of 275 $ lies right at previous major resistance (previous ATH), and also happens to coincide with the 78.6% Fibonacci retracement level.
The indicators are still healthy as Willy remains oversold and MACD and OBV continue to diverge bullishly. While there is still no telling when a terminal trend move will occur, we suspect little will happen prior to year end.
BTC/USD weekly log chart
Daily Chart: We also want to take a quick peek at the daily chart for a medium term view of the market. It is apparent that the bear market off of the 683 $ high remains intact, despite many impressive countertrend rallies. Additionally, there are moving average and Fibonacci convergences that resemble those on the weekly chart. Again, these are features that bode well for bulls over next 6-12 months, but the short term is muddied by seasonality and sentiment.
The momentum indicators are also looking quite good given a divergent MACD and an oversold Willy, however they have been this way for some time with no sustainable upward price move (and we don’t expect one before the new year).
BTC/USD Daily chart
Moving on to this week’s educational portion of the post, we want to temporarily stray from talking about pure technicals to talking more about market behavior, which was on full display this week given the Microsoft move. The first thing to note, and a good starting place, is that commodity bear markets rarely, if ever, bottom on news (events). They tend to bottom much more organically than equities do due to lack of cash flow and the importance of sentiment (TA).
Additionally, bear market rallies such as the one we saw this week and the one we saw over the summer on the PayPal news, can be vicious to the upside. That being said, they end as fast as they begin as price immediately recedes back down in typical bearish fashion.
Conversely, moves lower in bull markets can be insane, but price action reverts right back to accumulation following those selloffs, even after large washouts (given key support levels hold).
To sum it up, the trend is your friend! This old market adage is one that actually holds true in many market situations, and particularly in commodity and currency markets. News events impact short term price movements, but large players, the ones that move markets in a sustainable way, do not base their decisions on one input (and you shouldn’t either!).
That’s all for this week (and year for that matter)! We shall return the first week of January, but until then have a great holiday season! Cheers!
Happy trading! Have a great BITday!
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