A bear market rally in Bitcoin?

With the recent gains, some are already talking about a bottom for Bitcoin. There are always chances, but I prefer to draw my conclusions after looking at the price behavior. At the end of April 2022, I was sent an article with a headline that Bitcoin moved to $100,000. I have often seen similar, what I would call ridiculous posts, in the past. My immediate reaction is to hope that no new investors will act based on such a view, and secondly to look at the charts.

As was the case in 2018, when I responded to similar comments, the lists in April were quite negative. It was my conclusion that if Bitcoin, which was currently trading at 38,407, were to fall below a key price level (Key Bitcoin Levels To Watch), then prices would likely go significantly lower.

The analysis was partially based on this now updated weekly chart of the BitcoinUSD price. After the return to the yearly pivot of $48,259 failed in March, point 1, the technical evidence convinced me that the return, lines b and c, was just a pause in the decline. Falling below support at point 2, the formation completed as the original target was the annual pivot support S1 at $27,540. In June, the low was $17,600.

Even with the 13% decline so far this week, there is a lot of resistance across the market. S1 is now an area to watch and the descending 20-week EMA at $29,798 should provide strong resistance to a further rally. The weekly downtrend, line a, is currently in the $32,500 area.

The weekly MACD-His had turned negative before the May decline and while it is rising, it is still well below the zero line. MACD-His has formed higher lows, line e, which is potentially a positive sign. It will take time and a much stronger rally to suggest that a weekly bottom has actually formed.

The daily chart shows more clearly the continuation pattern, lines a and b between the January low and the late March high. By measuring the width of the formation, a downside target in the $20,000 area could be projected after support at line b was broken.

As often, the on-balance volume (OBV) shows a similar pattern, lines c and d. It fell sharply in early May, confirming the price action. As prices developed a trading range in May and early June, so did the OBV, as this was another break in Bitcoin’s decline.

The recent trading range was completed this week when the resistance in the $21,600 area, point 1, was overcome. This is a short-term positive that favors a further gain. A close below 19,300 will mean a new wave of sales. OBV has broken its steep downtrend, line e, and moved above its EMA, point 2, which is a positive sign. A move in OBV above the recent high could signal a potential move to the $26,500-$27,500 range.

After such a sharp fall in the price and the well-publicized disruption in the market’s liquidity, it is too early to conclude that a major bottom is in place. The magnitude of the price decline and recent rally is likely to generate some more wildly bullish commentary. In my view, those who remain long should consider selling on a rally back to $26,500-$27,500.