Breaking Down Bitcoin: What Traders Should Watch As BTC Traces Nasdaq 100 (QQQ)
Bitcoin BTC/USD saw a massive drop on Friday by around 15%, but given its strong correlation with the NASDAQ 100, it’s not surprising to see that when the NASDAQ 100 has a strong directional day or trend, Bitcoin tends to follow suit.
The weekly chart above Invesco QQQ Trust Series 1 QQQ showing a strong rebound from the June 15 low, now hitting major Fibonacci resistance at both the 50% and 61.8% retracement levels from the recent high and pullback.
The next two weeks will be very important in determining how the NASDAQ 100 and other major indexes will play out directionally given earnings, macroeconomic and geopolitical catalysts in the near term.
The price action shows that there is a twin tower candlestick pattern setup with the 20-week simple moving average (SMA) currently flattening out. If the price action finds support at the 20-week SMA in the next few sessions and bounces, further upside is possible.
But from the opposite perspective, this has all the hallmarks of a traditional harmonic ABCD pattern to the downside. The initial ABCD was made from the last high to low (January 3 – June 15), which also corresponds to the longer AB leg and a descending wedge pattern.
More recently, the price action is within the longer BC leg. If the price action were to reverse, the 200-week SMA (orange line on the chart) would act as the first support area, and if the trend continues after that, traders and investors will see a potential move lower.
Bitcoin has seen 3 legs lower on the daily time frame since the peaks in April, with the 200-day SMA acting as strong resistance. Lately, price action has been in a major consolidation phase since mid-June, and Friday’s price action saw a big red Maruboza candle off the 20-day SMA that history suggests has an over 80% chance of following through to the downside.
A simple rule of thumb is within a trending market, 3-5 legs are created in the direction of the current trend about 70% of the time before a potential reversal.
Taking a look at the weekly chart, Friday’s price action gave a strong signal for potential further downside as a bearish engulfing candle was made, breaking below both the 200-week SMA.
The price remains within the upper 50% of the consolidation range, but a continued breakdown below the 200-week SMA could signal a potential freefall and mass liquidation of institutions. The long-term ABCD pattern to the downside remains intact.
