BTC Diamond top in play
Updated
BTCUSD has had quite the run so far this year. The inverted H&S pattern prompted the initial move up from the mid 7k area into the low 9's. Most took profits quickly upon reaching this target price range and it quickly retraced to the $8200 price range. Bears were unable to sustain any serious momentum further to the downside due to the Corona Virus shockwave that emerged, spiking volatility in the global equity markets. At the same time, we had a presidential impeachment trial taking place in the Senate, upcoming economic data readouts, a Fed announcement regarding interest rates, and a large uncertainty surrounding earnings reports on the horizon for mega-cap tech companies AAPL, MSFT, AMZN, AMD, and FB. It was a perfect storm of FUD that aligned well with the recent developments in the crypto markets. The recent shakedown of the stock market on Friday and rising fear around the virus outbreak and the potential impact on the global economy drove BTC even higher as it lunged into the overhead resistance area of $9500, where we broke down from the descending triangle in September last year.
Looking at the chart now, BTC has a lot of other positive things going for it. The daily and weekly MACD are bullish. The strong recent close on the monthly chart is also a sign of strength for the continued rally, as BTC exits January with a convincing bullish reversal pattern known as a Morning Star.
However, the bears are not convinced, and even many bullish traders believe there is another dip coming before we break through the ceiling. The volume has steeply dropped off from the spikes we were seeing earlier in the week, and the price range between $9000-$9500 is becoming increasingly choppy. After the initial spike to $9575 and subsequent rapid decline, some were preemptively spotting what appeared to be a Head & Shoulders pattern forming. Looking more closely, on an intraday chart starting with the 6HR, then the 1HR, and finally the 30 Minute chart, you can see the Diamond pattern more clearly. This is a somewhat rare reversal pattern that can be bullish or bearish in nature; which, is bearish in our case since it appears after a sustained uptrend. The volume is high leading into the pattern as it is typically found around important price levels. This high volume and volatility create a broadening pattern with higher highs and lower lows. The mid-point is formed after attempting to cross major resistance or support. A failure here often leads to a corresponding reaction low created from heavy selling after the rejection. However, bullish sentiment is still strong at this point and some of the value buyers and short term traders step in, knowing that these key levels require several attempts to break through, thus creating our long wick in the center. The right side of the pattern is contained by a downward sloping resistance line and upward sloping support line. Lower highs and higher lows, usually with low volume comprised of day traders scalping the highs and lows of the contracting price range. The majority of traders that exited the rejection wait on the sidelines alongside many other bullish, yet more prudent/risk-averse investors that will not make a long entry until a convincing break of the resistance level followed by a strong close above on the daily.
As we approach the apex of the pattern on the right side, it is not uncommon to see another last attempt at previous highs. If this occurs remain patient, watch for strong volume on a lower timeframe. This is usually a fake-out and results in another long wick back into the pattern. This final rejection is where the breakout to the downside follows soon after. The target price for the pattern breakdown is found by subtracting the top of the pattern from the low, however, diamond patterns are known to continue past this point so any re-entry should be exercised with caution in portions. The first buy order can be placed on the 200-day moving average as this will likely be heavily defended by the bulls. I expect to see increased selling pressure from the bears as they gather momentum from their recent victory. Short term weakness in the bullish sentiment and doubt will lead to spikes down into the $8500 price area where buyers more interested in the long term trend and the upcoming halving event will quickly step in. This may go on all weekend, chipping away at bearish momentum so be patient to fill buy orders in high-value areas.
Morning Star candlestick pattern on the monthly timeframe:
Looking at the chart now, BTC has a lot of other positive things going for it. The daily and weekly MACD are bullish. The strong recent close on the monthly chart is also a sign of strength for the continued rally, as BTC exits January with a convincing bullish reversal pattern known as a Morning Star.
However, the bears are not convinced, and even many bullish traders believe there is another dip coming before we break through the ceiling. The volume has steeply dropped off from the spikes we were seeing earlier in the week, and the price range between $9000-$9500 is becoming increasingly choppy. After the initial spike to $9575 and subsequent rapid decline, some were preemptively spotting what appeared to be a Head & Shoulders pattern forming. Looking more closely, on an intraday chart starting with the 6HR, then the 1HR, and finally the 30 Minute chart, you can see the Diamond pattern more clearly. This is a somewhat rare reversal pattern that can be bullish or bearish in nature; which, is bearish in our case since it appears after a sustained uptrend. The volume is high leading into the pattern as it is typically found around important price levels. This high volume and volatility create a broadening pattern with higher highs and lower lows. The mid-point is formed after attempting to cross major resistance or support. A failure here often leads to a corresponding reaction low created from heavy selling after the rejection. However, bullish sentiment is still strong at this point and some of the value buyers and short term traders step in, knowing that these key levels require several attempts to break through, thus creating our long wick in the center. The right side of the pattern is contained by a downward sloping resistance line and upward sloping support line. Lower highs and higher lows, usually with low volume comprised of day traders scalping the highs and lows of the contracting price range. The majority of traders that exited the rejection wait on the sidelines alongside many other bullish, yet more prudent/risk-averse investors that will not make a long entry until a convincing break of the resistance level followed by a strong close above on the daily.
As we approach the apex of the pattern on the right side, it is not uncommon to see another last attempt at previous highs. If this occurs remain patient, watch for strong volume on a lower timeframe. This is usually a fake-out and results in another long wick back into the pattern. This final rejection is where the breakout to the downside follows soon after. The target price for the pattern breakdown is found by subtracting the top of the pattern from the low, however, diamond patterns are known to continue past this point so any re-entry should be exercised with caution in portions. The first buy order can be placed on the 200-day moving average as this will likely be heavily defended by the bulls. I expect to see increased selling pressure from the bears as they gather momentum from their recent victory. Short term weakness in the bullish sentiment and doubt will lead to spikes down into the $8500 price area where buyers more interested in the long term trend and the upcoming halving event will quickly step in. This may go on all weekend, chipping away at bearish momentum so be patient to fill buy orders in high-value areas.
Morning Star candlestick pattern on the monthly timeframe:
Note
Update: Closing in on the breakpoint now. The volume is extremely low and the bid/ask spread is wide, causing the large sporadic price movement. A breakout to the upside is always possible even in a pattern widely known for bearish reversals. And there's people that have examined these patterns over large time spans to find the probability of upwards/downwards breakouts, as well as the % increase/decrease for each after the break. And I mean, come on...this is BTC we're talking here! I've seen it defy the odds countless times. Certainty is a dangerous mindset for this asset class, i'll just say that. But we do have some bearishness on the MACD throughout the lower timeframes now, which further strengthens our case for a downside move with these crosses taking place in this already compressed area. Assuming we do breakdown, I'll buy at the 200 day for a potential pullback to the new resistance levels under the pattern before exiting. I still think we'll see $8800 easily, and if there's a large group of stop orders clustered below $8600 this could potentially take us back down to the $8000 price range. It really all depends on how much momentum picks up on the sell orders.Note
Note
10:24 PM Seeing a pullback to the bottom of the diamond pattern, where a cluster of moving averages have gathered and also happens to be the Point of Control on the VPVR (Volume Profile Visible Range) so this won't be easy. A cross and convincing close above here will open the door for a break to the upside. 
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