Bitcoin triggered a long-term bull trend continuation signal last week as it broke out above $4,979.90 to a new record high. Since then we’ve seen short-term weakness after the digital currency hit a record high of $5,846.78 last Saturday. That price area was subsequently tested as resistance over the following four days before Bitcoin fell on Thursday. The low of the pullback so far has been $5,101.36, which put Bitcoin 12.7 percent off the high.

Given the strong long-term uptrend and the trend continuation trigger last week, a resumption of the bull trend can be anticipated following the completion of the current pullback. Nevertheless, there are several technical reasons to prepare for a deeper pullback than what’s been seen so far.

First, Bitcoin failed to break out above Saturday’s high after a four-day attempt. The failure was indicated on a drop below the five-day low of $5,380.00 on Thursday. Also, we now are starting to see the beginning of a series of lower daily highs and lower daily lows. That’s the beginning of a downtrend, although in this case the expectation is for a short-term counter-trend decline given the larger and more significant long-term bull trend. In addition, the Saturday high was right in the area of two Fibonacci measurements, marking potential resistance. One ratio was the 141.4 percent extension of the most recent 40.3 percent correction at $5,842.73, and the other the 200 percent projection of the first leg up in the current near-term uptrend at $5,815.38.

Source: Tradingview.com

Now let’s step back a minute and give some perspective to the volatility of price swings in Bitcoin since the beginning of the year with the presumption we might learn something about the potential for current and future swings. The red marks on the attached daily chart show the degree of correction that has occurred during this year. There have been at least nine declines of substance with the largest down 40.36 percent (most recent) and the shortest down 15 percent. To summarize, we can group the larger corrections (there were five) at between (32.97 percent) to (40.36 percent), and the shorter (there were four) at between (14.98 percent) and (19.64 percent) There have been three prior sustained rallies this year, with advances of between 77.97 percent and 202.48 percent. The current rally was up as much as 96.72 percent as of the recent peak.

Given the above, and that we should assume the trend continues until proven otherwise, we might conclude that the current retracement​ could fall at least 15 percent if not more, and that once complete, the uptrend continues. Therefore, for investors who are not yet in Bitcoin and interested to participate, and those that would like to add to their positions, the current pullback is one to watch closely.

This next chart shows where we might see support if weakness continues in the near term. The first level to watch is around the prior high of $4,979.90 to the 21-day exponential moving average (EMA​), currently at $4,976.52. That price zone is followed by the 38.2 percent Fibonacci retracement at $4,750.37 combined with prior resistance (now possible support) at $4,680. Further down is the $4,453 to $4,411.79 price zone, consisting of prior resistance, the 50-day EMA and the 50 percent retracement level. Finally, at least for now, we have a potential support zone from around $4,123 to the 61.8 percent Fibonacci retracement level at $4,073.22.

Source: Tradingview.com

Now regardless of the above analysis, and given the strong bull trend in Bitcoin, we should also be prepared for a faster continuation of the uptrend with an upside breakout above the recent high. A bullish trend continuation signal would be given on a rally above $4,546.43. At that point Bitcoin would next be heading towards the 1.618 percent Fibonacci extension of the most recent significant correction at $6,256.34, followed by a Fibonacci cluster around $6,975.

The Bottom Line

  • Bitcoin remains in long-term bullish uptrend that will likely resume following a pullback
  • Short-term signs point to a deeper pullback in the short-term
  • Potential support price zones are marked by at least two indicators

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