(BTC) Bitcoin / U.S. Dollar
Hi friends! Welcome to this tainted, dorksided analysis, on Bitcoin! It's dorksided. Let's get it! Looking at the four hour BTC chart, you can see that we fell below the rising green trendline , and we actually pierced the top of the pink downtrend channel . This price action is obviously violating those levels, and weakening them as support. Furthermore, you can see that BTC is in the midst of creating a bear flag consolidation, as it repeatedly violates the rising green trendline . The last time we saw similar action around the green trendline was between 2/2 and 2/3. Then, there was a slight rally that quickly rolled over, and produced the massive selloff that sent BTC down to 6000. With that said, if BTC manages to breakdown back into the pink downtrend channel , that will be extremely bearish . Such an event could trigger intense selling, so you should pay very close attention to any violations of the pink downtrend channel , especially if you're long. The fact that BTC is building a bear flag just above these very important support levels, is not a very good sign. Now, whether or not this flag breaks to the downside is yet to be seen. If you look at all of the bull and bear flags produced inside of the inverse head and shoulders pattern, you can see that they mostly produced moves in the projected direction. Therefore, based on the recent high reliability of flag patterns in BTC , the odds are that this bear flag will break to the downside. A downside break could send BTC down to test the 78.6% retrace, which is below the pink downtrend channel .
On the MACD , you can see that we're still expanding lower, under a bearish crossover, but the momentum curve seems to be flattening a bit. That's a normal thing to see, during a consolidation, so I wouldn't read into it too much. The sell volume that we saw yesterday was about five times higher than average, so the sellers are definitely here.
I'm sure some of you are wondering "Magic, why don't you throw out that inverse head and shoulders pattern?" The reason is because it is technically not invalidated. Technically, the pattern will remain valid, until BTC surpasses the head on the downside — meaning it falls below 6000. With that said, it's common for people who don't understand market mechanics, to reject extensions of patterns, or formations that don't conform to their misguided standards of symmetry. If you were around when the series of head and shoulders formations was being created in BTC , you probably remember that a lot of people were criticizing me. Meanwhile, I used the original head and shoulders at the all time high, to generate a nearly perfect downside target. Patterns can repeat, and extend, and morph into longer or skewed versions of the original, before actually producing the move that was projected from the beginning. That's exactly what happened with the head and shoulders formations after the all time high in BTC . Obviously, short term fluctuations that prolong breakouts don't always change the longer term projection. We may see a series of inverse head and shoulders formations here, before we get a real upside breakout. However, we have to protect ourselves from loss, by exiting when it is appropriate, or even shorting when the time is right.
So, if BTC breaks down into the pink channel, I will definitely be more bearish , and I may even short it on the downside. However, that won't make me lose sight of the fact that a huge inverse head and shoulders pattern was just formed. If I would have gone full bullish , after the first head and shoulders failed to breakdown immediately at the all time high, I would have never been able to keep my focus on the longer term downside target.
For now, let's keep an eye on the bear flag, and watch for a downside breakout, and a retest of the top of the pink downtrend channel.