It seems that bitcoin may face a sell-off similar to its fall from the peaks of mid-May. The largest cryptocurrency is currently trading above the daily low, which is located under the mark of 56 thousand dollars, but it is separated by almost 20% from the record peak on November 10. Perhaps, testing of the lows from October 20 is ahead of us.
For a long time, the currency has been growing on expectations, but now investors are selling BTC, since last week there were reports about the approval of the compensation payment schedule for users of the bankrupt Mt.Gox cryptocurrency exchange.
Can today’s surge indicate the end of the sale and the appearance of an opportunity to buy? If you believe the technical picture, the answer is no.
Today’s BTC recovery looks like a rollback to the lower border of the pennant, formed after falling by almost 16% in just five sessions.
By itself, the pennant breakdown does not meet the requirements of “perfectionists” who are waiting for at least two touches of the lower border of the figure. Regardless of whether the dynamics of the market from November 17 to 21 (i.e., within the required five-day period) fits into the pennant model, we expect that the market will move according to the classical scenario.
First, remember that bitcoin is not a traditional asset and requires a special approach. And while there is no textbook on the technical analysis of digital assets, the experience of observing the bitcoin market has allowed us to understand the psychology underlying trading this asset.
So, that’s why we consider the figure to be a real pennant:
A pennant is always preceded by a sharp and read rectilinear movement. A 16% sale fully meets this requirement.
The trading volume at the decline stage was high, but it decreased within the boundaries of the assumed pennant, after which it jumped again at the breakdown; this is a classic behavior for a real pennant.
The long red candle of the pennant is based on the minimum of October 28 at $57,612 dollars. This control point creates all conditions for the fight between “bulls” and “bears”.
The pennant was formed at the moment when the 50-period DMA caught up with the price for the first time since the October 1 crossing.
Finally, the model formed right at the bottom of the ascending channel.
The last two points are consistent with point #3; when an asset reaches the point of opposition, it tends to move into a sideways trend, interrupting the main movement. Given that the pennant is by its nature a continuation pattern, a breakout would have to occur in the direction of the trend; yesterday’s sell-off is very similar to this breakdown.
Nevertheless, the new stage of decline will still be a temporary phenomenon, as clearly indicated by the weekly chart.
Let’s now find out how much bitcoin lost before the pennant was formed, since the classical theory requires repeating the movement already below the model. The peak of November 15 and the low point of November 19 are separated by $ 10,650. A repeat of the movement suggests a drop below $48,000.
If the momentum pushes BTC to this level, the currency will fall below the longer-term ascending channel. But that’s still a long way off. While this milestone stands, we expect the uptrend to continue.
Trading Strategies
Conservative traders should not trade against a long-term trend.
Moderate traders will wait for a close below the short-term (green) channel and a pullback, which will minimize the stop loss.
Aggressive traders can sell now, provided that their position withstands a pullback to the pennant.
