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Bitcoin Analysis for the First of the Month — How BTC moves vs. the S&P 500

Potential trade setups, Bitcoin deviates from a 7-week trend against the traditional markets.

Photo by Dmitry Demidko on Unsplash

Summary

  • Bitcoin has returned within the previous range and is now testing the top as a short-term SR level.
  • Bitcoin’s head and shoulders pattern is not yet validated.
  • Bitcoin deviates from its 7-week streak of correlating with the S&P 500

Happy Friday, Alpha Traders. This is a quick Bitcoin-focused analysis.

Bitcoin has returned inside and held the range formed by the triangle I mentioned the other day. After the break up from 8963 towards 9450, the price has returned inside that range as of this writing. There were some deviations outside of the range over the past day, but the price has reacted to the top and bottom of the range several times.

Yesterday I found an interesting pattern — if you look at the consolidation from April 29 (marked with a horizontal black line in the image below) which marked the beginning of the triangle, notice how the wick from April 30 touched that marker perfectly (indicated by the black circles on the chart) before bouncing back inside the range.

Everyone who shorted the break of the channel yesterday was trapped below as the price moved further up. I shared that concern with the Advantage community as it was taking place the other day. It’s important for you to understand what a true breakout or breakdown is, and know when to get into a trade on either of those versus staying out of a trade at the risk of a fakeout. I explain these concepts in the Discord community — how to be patient in a trade and how to wait for confirmations of breakouts or breakdowns.

Bitcoin validated the channel, Source: Alpha Trades, LLC
Bitcoin validated the channel, Source: Alpha Trades, LLC

There was a lot of talk in the Discord as well as TradingView the other day that Bitcoin was developing a head and shoulders, but many people don’t understand that such a pattern is not validated until the neckline is broken. In addition, the volume at the left shoulder should be higher than at the head, while the head prints a higher high, and in this case, the pattern does have those features. It’s important to understand how this pattern develops, why it’s important to analyze the volume profile, and why the break of the neckline is crucial for complete validation of the pattern.

Bitcoin‘s head and shoulders seeks validation, Source: Alpha Trades, LLC
Bitcoin’s head and shoulders seeks validation, Source: Alpha Trades, LLC

Yesterday, I informed the community of a potential longing opportunity.

Just as the price was breaching some of the diagonal lines as seen in the chart below, I alerted people that if the price breaks above 8727 on the five-minute trend line, it would likely reach 8840. This was an unofficial trade based on smaller time frames, so you would have needed to be in the Discord channel to catch that one.

That would have been a quick $60 — $70 move for anyone who caught it. The price exceeded well beyond that marker, but I provide several trade setups like this in the Advantage community, quick in-and-out moves to protect profits.

I’m paying attention to what Bitcoin does outside of the current channel it’s inside of. If the price reaches that recent high of 9450 and double-tops, I’ll consider entering a short. There may be a powerful rejection near that recent top. Alternatively, if the price breaks down from the top of the range, then falls out of the channel and retests the bottom as resistance, that would be another shorting opportunity. I’d place my stop just above the bottom of the channel and ride the short down to 7930, which was the previous level of consolidation on April 29 before serious volume pushed price higher. A deeper target would be the level where the price created the first triangle on the breakout around 7800.

Bitcoin playbook for the next few days, Source: Alpha Trades, LLC
Bitcoin playbook for the next few days, Source: Alpha Trades, LLC

This is not trading advice, but it’s something I’ll pay attention to. I’m not currently in a trade, but I am paying close attention to what’s happening in the market. The interesting thing about the market right now is that if you look at Bitcoin’s price action, the price moved up overnight whereas the S&P 500 moved down. This is one of the clearest divergences in price action we’ve seen in several weeks because Bitcoin has been moving together with the overall markets. I see this more as a warning sign than an indication that Bitcoin has finally returned to its pre-corona status as a non-correlated asset. However, Bitcoin can sometimes lead the overall market. The reason is that Bitcoin is a high-risk speculative asset, something I’ve discussed thoroughly with my community.

Thinking of this in another way, consider the Russell 2000 Index, which is made up of small-cap companies. This index helps you understand the health of small-to-medium-sized businesses in terms of stock prices. Compare that to the Dow Jones Index (DJI), which is composed of larger companies. When you compare these indexes to the total market capitalization of Bitcoin, which is currently 117.81 billion, it helps you understand how easily this asset can be affected by actions in the larger economy. The Russel 2000 accounts for trillions of dollars worth of activity, so where does that leave tiny Bitcoin?

The four-hour chart of Bitcoin has printed several bullish candles and volume remains high. The most recent candle closed above the channel I’ve discussed at length so far.

It’s possible that Bitcoin tests the top of the range and pushes up from there. I’ll keep my community informed with what I decide to do with that setup.

Something else I’ve been paying attention to is the footprint (L2) data, and so far I haven’t seen any significant walls pressuring Bitcoin down. Usually, I can spot $10–15 million blocks, but it’s quiet for now. The footprint data makes up a more complex trading toolbox, I use it extensively for the intra-day analysis I provide for the Alpha Trades community. One thing I keep an eye on are spoofs, or large sell or buy walls designed to scare people or trick algorithms into buying or selling.

The daily time frame printed a nasty close, while the current daily candle looks like it wants to keep pressing up. I mentioned 9225 as a key area to watch out for. The monthly chart looks interesting because everyone’s talking about the strong bullish engulfing candle. But remember that for the last three years, bullish engulfing candles on the monthly don’t indicate much of a bullish trend. In some cases, they are followed by six straight months of downside.

I’ll be covering the alt-coins and the other markets in the Advantage side, so I hope to see you there. Until then, take care and good luck in your trades.

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Disclaimer

Information provided by Alpha Trades, LLC is not intended to be utilized in making any financial decisions and is not a solicitation, nor recommendation to buy, hold, and/or sell a particular product, digital asset, or ICO.

This article was adapted from the video below, recorded at 7:00 AM while the price of Bitcoin was at 8954.

May 1 market analysis, Alpha Trades LLC via Youtube

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