Well, we hope you had a great weekend - which you should have if you're long bitcoin, right?!
Anyway, after our last post resistance at $820 got pierced and as we predicted, this was followed by a run at the top. And we got oh so close but for the time being - no cigar.
Here's how things look on a chart:
What we'd like to draw your attention to is the consolidation pattern contained in the green wedge. For a market in such a strong up-trend this looks pretty bullish as it represents a build up of the sort of latent energy you see when market participants nervously trade price up and down within a steadily narrowing range gate.
The presumption will be that once price breaks out of this wedge, direction will be confirmed and momentum traders will pile into the market, driving price hard in the direction of the breakout.
Until this happens everyone is wondering which way it will break. So, with this in mind we'll offer our tuppence worth.
Probabilistically, the odds favor an upside breakout. Not only is the macro picture crazy bullish but we are consolidating just below all time highs, having recently 'bought back' a huge (50%) v-reversal, which will have many a bitcoin bear biting their finger nails.
Right now anyone short bitcoin will be praying that momentum evaporates, that the market makes a lower high and as bullish confidence ebbs away, they can clean up as price pitches into a steep dive, back down to $450 maybe.
As an insurance policy, these short sellers will have placed their loss stops just above bitcoin's all time high - and possibly even closer - as they will want to cut their loss quickly in the event of an upside breakout. This of course will serve to feed the positive order flow and drive price quickly North.
BUT it would be wrong to assume that these 'top pickers' are crazy stupid. Markets do re-trace and right now we have extended back to historic highs.
As we have said many times, for a trade to execute there must be someone with a countervailing view on the other side of it. None of us know what the market will do next and fooling ourselves that we see something that others don't is an expensive game.
This suggests that the market may surprise the majority with another plunge South precisely because most think it will continue North. Bitcoin is, as you all know, still relatively illiquid and this leaves it vulnerable to brave counter-trend traders with deep pockets.
And it is for this reason that we intend to sit on our hands and resist any temptation to add to our position - even if tempted by a huge upside spike.
But that's just us...
Happy Monday,
Rob @ BitScan
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