What a wonderful week it was last week. The bulls won the battle and the 50ema broke down. On Monday, the price rose to a level of $ 4,083 on Bitfinex after which it fluctuated for a few days around the level of $ 4,000. For the rest of the week it was quiet but today there was a lot of action and volume when the price initially increased to $ 4,282 and then saw a sharp decline. We have broken the 50ema and as I discussed last week the real test is the re-test of the 50ema. There we are now because the course today found exact support on the 50 ema and the rising trend line. Does the 50ema stand and do we continue the rally or has the work of the past weeks been for nothing?
Figure 1: Daily graph bitcoin
Figure 1 clearly shows how we broke the 50EM last week and how the price found support at this level today. Traders had placed strategic purchase orders and the price stabilized quickly. At the same time, the price also supports the rising trend line (in red) that has been present for several weeks.
That we would get a re-test of the 50ema was to be expected but I have to say that I am surprised by the speed of the drop today. Traders were quick to take their profits and that shows that the market is still fragile and that panic can quickly take over. This is a clear legacy of the turbulent period of the past year and will take time to recover. Confidence must return to the market and that goes step by step.
If we look at the momentum indicators, we see varying signs: on the daily graph, the momentum indicators are reversing while the indicators on the weekly chart are mainly bullish. Nonetheless, on the weekly chart, a shooting star pattern has formed and this is often a sign of a trend reversal (in this case from bullish to bearish).
Figure 2: weekly chart bitcoin
The current sharp decline has made the rally of last week more fragile than it already was. On the daily graph we see a bearish engulfing and on the weekly chart a shooting star. The support is thin and staggers but it has to keep if the market wants to see a progress last week.
If the price breaks through the 50ema then I believe that the price will really find a new low. It would be the umpteenth disappointment for the bulls and underline that this bear market is not over yet. If the price is up, we have a good base to go hunting for the $ 5,000.
Personally I am very defensive at the moment and I will leave my long position if we break further down. My current position is big enough at the moment so I do not add anything but for traders this is a very nice moment to open a long position. We are on the support of the 50ema and the rising trend line and have a clear stop-loss indication (around $ 3,700).
It’s exciting at the moment and my eyes are very focused on the level of $ 3,750 / $ 3,800. If the price really drops through, then it is all hands on deck. But if the 50ema holds out … then we can sometimes go through very nice weeks!
