Friday Inferno market update
TL;DR Bitcoin dumped close to key support. What happens next is critical.
Bitcoin took a leg lower yesterday, with a drop of around $1,000. While that kind of volatility has been pretty normal for bitcoin over the last few months, this time the stakes are higher. BTC has fallen back to the support line it has touched multiple times since the run-up to almost $14k.
Over the past two months, bitcoin price has described a descending triangle, much like the large descending triangle we saw in the bear market of 2018, with a baseline around $6k. This time, the base is around $9,300. Either way, experienced traders will tell you that the majority of descending triangles break down, and the more times price tests the bottom, the more likely it is to fall through it. This time, we also put in another lower low, falling below the previous low of $9,467 (though closing the day above it).
So there is good reason to think that BTC might have a lot further to fall, if it breaks below around $9k. That futures gap around $8,500 is one clear target, and if that fills then there could be another lower down at $7,200.
However, gaps do not have to fill — there still are unfilled gaps from the last bull market. They are just common targets for traders and often do end up becoming self-filling prophesies. For the broader picture, things feel like they’re right on track. Bearish sentiment is taking over, which is a contrarian signal. Weekly RSI has corrected from overbought back down to the mid-50s, just as it did at the very start of the last bull market in 2015. We have the 21-week EMA just below 9k, and a test of this is to be expected in a healthy bull market — again, just like in 2015.
Of course, an overshoot is possible if panic selling takes hold, but that doesn’t change the fundamental picture, and we have downside targets in the low $7k range.
Sadly for alts holders, the picture is not happy. Bitcoin has had a bad week; alts have had a bad six months. Many alts are posting new lows. The good news — kind of — is that they may finally be reaching a bottom, looking extremely undervalued. But that will only be known in hindsight.
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