Tuesday, 9 July 2013

BTC Update Wednesday 10th July

Since Bitcoin hasn't moved much since our last post we thought we might usefully review how we got to where we are and explain what the market would need to do to reverse the prevailing bear bias.

In doing so readers should be clear that as market technicians we do not question the fundamental reasons that move a market. Our sole focus is on what price and price action are telling us about market sentiment in the moment.

Anyway, without further ado, here is is a Daily Chart...

On it you can see that in the last days of May (Point A) - and having failed to retest its previous high in the $150's - the market reverses, creating a 'lower high'.  From a psychological perspective this is significant as it means that a majority of market participants felt that the previous high was unattainable and chose to liquidate some or all of their holdings.

This creates a downward sloping resistance line that the market retests but ultimately fails to trade above (Point B).  This, in turn, feeds the growing bearish sentiment and more participants liquidate bitcoin, sending the market through key horizontal support at $90 and down to test and ultimately defeat long term rising support (Point C).

And this brings us to where we currently sit, trading beneath key rising, descending and horizontal levels, all of which now present themselves as psychological and technical resistance, for the simple reason that many market participants will be placing sell trades against them.

Does this mean that the market lacks the power to break back through this confluence of resistance?  Absolutely not.  All market reversals start from an extreme: $65 could very well prove to have been that extreme.

Is this likely to happen quickly? This too is unlikely. Market sentiment does not generally reverse quickly.  In this case - and based on the price action we have witnessed against $65 support - the most statistically likely scenario is a failed test of resistance, followed by a retest of the low.  If $65 gives at the next attempt it will trigger another down leg with $50-55 the target.  If it holds, we are most likely to enter a trading range while market participants have time to absorb the price action and the prevailing sentiment becomes more two-way.

The exception to this prognosis would be a further downside extreme, into which a big player or players use the liquidity to feed big buy orders into the market. If powerful enough this could result in a V-reversal such as we witnessed in mid-April, with the potential to turn prevailing sentiment on its head.

We haven't seen this yet and the fact that we haven't is what informs our view that we are most likely to see another re-test of the recent low (or near to it) before we can hope for a gradual shift in bias back to the bull side.