Bitcoin Chart Update — May 27, 2021
Will Elon Musk Leave Bitcoin Alone This Time?
Last month I wrote about the “current bitcoin surge”.
Oh, how the mighty have fallen.
If you recall, the daily chart I left you with last month was the following:
The latest daily chart is the following:
The support and resistance lines on Chart 2 are the same as on Chart 1, the only difference being the price action that took place since the last time, namely the price moves within the yellow box in Chart 2.
It’s worth noting the fundamental reasons why bitcoin reversed course. If it wasn’t Elon Musk’s social media flip-flopping on his support for crypto in general (and bitcoin in particular), then it was China’s “ban” on bitcoin mining.
And then there were the other catalysts that pretty much poured more gas on the fire:
- Margin traders who were late entrants in the prior bitcoin boom and who were forced to sell when BTCUSD took out sell stops from bitcoin bears — and trailing take-profit stops from bitcoin bulls — on the way down.
- The growing availability of the BTCUSD swap market that facilitated margin trading on bitcoin in the first place.
As I will repeat from time to time, whatever the reasons for the latest bitcoin movement, price has memory, and traders love patterns and round numbers.
So here’s the setup:
Bitcoin surged to $55,000 by mid-February, and then it retreated to $45,000.
BTCUSD then reached new highs above $60,000, but the market could already see price action slowing down.
Bitcoin’s price traded around the $55,000 pivot for the next couple of months trying to reach $65,000, before decisively crossing below the 60-bar moving average and thereby setting the stage for a new downtrend.
BTCUSD eventually broke through key support at $45,000, which has now turned into key resistance, and that’s where we are at the moment.
And here’s the analysis:
There is arguably a head-and-shoulder-top pattern in play here on the daily chart above.
A left shoulder formed throughout January, as depicted in the orange box in Chart 3.
Current price action seems to be setting up to form a right shoulder, as per the yellow box in Chart 3, which will mirror the left shoulder.
What does this mean for analyzing price action going forward?
For bitcoin bulls, this means that for BTCUSD to resume its prior uptrend, price needs to close convincingly above resistance at $42,080 and $45,000 thereafter (the round number target), and it has to continue going up with $45,000 back to being a support level.
For bitcoin bears, this means price needs to close convincingly below support at $27,920 and then $25,000 thereafter (another round number target) to confirm that the downtrend is real and that the current price action was not just one major correction.
In other words, to confirm a definitive trend either way, price would need to move convincingly above or below — i.e. outside — the yellow box in Chart 3.
In the meantime, price may just continue to range widely around a pivot at $35,000 until the market figures out what it wants to do.
Time to set your market orders, friends!
Disclaimer: This content is for educational purposes only. It does not constitute trading or investment advice. Past performance does not indicate future results. Do not invest more than you can afford to lose.
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