As regular readers will know, we rarely post an update every day, as we prefer only to update our analysis when the technical picture changes. However, the situation right now provides such a perfect example of what we spoke of yesterday that we couldn't resist it.
So, here's the chart...
As you can see we have enlarged the bars and we'd like to focus on the last 48 hours or so.
You will recall us saying yesterday that market participants would be looking to gauge strength at areas of support, and we suggested that $750 (Gox) was one such area.
We further stated that the best potential for profit was to trade against areas like this - in spite of the fact that the bars looked so 'ugly'.
Finally, we stated that nascent rallies always look like they are about to reverse.
Well, what you see on this chart is how these situations tend to play out. Having tried to conclusively pierce the confluence of horizontal and rising resistance for a period 16 hours, the order flow suddenly reverses as the bears run out of steam and more and more bulls reach the conclusion that a bottom has been made, and jump back into the market 'long' as a result.
The subsequent rally, once triggered, moves quickly as a result of new buyers coming in and fearful bears buying back in to close their short positions.
With respect to what next, we would have to conclude that should the current bar close at or near the top of its range, a re-test of $835 is a racing certainty and we may well see the market rally up to the $870 area, before sufficient selling materializes to smother or reverse the current bullish momentum.
Finally, and while we haven't shown it for fear of cluttering the chart,we would add that this latest rally is occurring on the back of significant volume in relative terms. On this basis it isn't out of the question that bull power will push the market as high as $900-950 on this thrust.
The bottom line is that we wouldn't advise anyone to be liquidating bitcoin unless the market reverses back through $750 within the next 4 hours or so. If you are long bitcoin our advice would be to hold what you have until at least $835 and only liquidate or lighten there if you absolutely must.
As ever, we will update you again when the situation changes.
Rob @ BitScan