Bitcoin initially rallied last week, eclipsing the $11,100 level before turning around to form an inverted hammer, closing around $10,900. Bitcoin retesting resistance at $11,000 is bullish of course, with the buyers stepping in around $10,000 to show major support underneath. Bitcoin could be in the process of completing a Wave 2 correction in a 5 wave sequence.
(September 20, 2020 8:00 PM EST)
I am not concerned about the overall direction of Bitcoin; my focus at this time is how deep of a pullback Bitcoin will experience before its next run up. The uptrend is still well intact, and that is my prognosis unless Bitcoin closes below the 200 Day EMA around ~$6,753 (notice I didn't say "break" below). If we look at BTC on the Weekly chart through an EWT lens, there is a case to be made for Bitcoin having completed a Wave 1 around ~$12,000 and is now in a corrective Wave 2 or Wave ii of 2. This appears to be a corrective phase in which Bitcoin should retrace some of its recent higher high gains but not penetrate its recent higher low. That being said, on the Weekly chart, I could see Bitcoin retracing as deep as the ~$7,000 level before finding major support, which would preserve the current uptrend and qualify for a healthy fibonacci retracement. If this scenario plays out, Bitcoin may start its impulsive Wave 3 (or Wave iii of 3) up, which is traditionally the strongest and most convincing wave in which opposing speculators capitulate.
Support: Bitcoin is currently trading above the 50 and 200 Week EMA's, which should act as significant long-term support below at ~$9,270 and $6,753, respectively. If Bitcoin were to fall off a cliff and drop below the $10,000 level, look for deeper wallets to step in to buy around the 50 Week EMA and then finally the 200 Week EMA around $6,753. If Bitcoin falls below that, the new Bitcoin uptrend is in jeopardy.
Resistance: Looking ahead, Bitcoin is a buy on the dips scenario, with medium- and longer-term investors looking to add on pullbacks, particularly the $10,000 and ultimately $9,000 levels below, which should be strong support. Next immediate resistance overhead is the July 2019 highs around $14,000. The good news is that $14,000 is probably the last stop before Bitcoin runs up to new all-time highs around $20,000, as there should not be many sellers between $14,000 and the previous all-time highs around $20,000 US. Longer-term, the sky is the limit for BTC, especially if the Lightning Network Upgrade is implemented in the next 12 months to accommodate new money entering the market and mitigating high transaction fees. One positive note is that once Bitcoins breaks $12,000 and then $20,000, it should be a quick run up to $30,000 or $40,000, as there will be little selling resistance. In fact, there might be a surprising amount of buy orders set around the $50,000 level as it is only around that price valuation and market cap that institutions will view Bitcoin as an asset class with sufficient liquidity to dabble with.
Outlook: Just last week, the Fed Reserve Chairman Jerome Powell announced at the FOMC meeting that the Federal Reserve will be actively striving for a USD inflation rate of "2%." At this point, we all know what this means, and the implications for fixed-supply assets and forms of sound money like gold and Bitcoin. Dips are buys at this point. DCA'ing in small tranches is an effective, low-risk way of accumulating more BTC while it is at a relatively low point on the long-term regression model. The Fed's monetary policy further cemented the bullish macro environment for this price model. Shorter-term, I could see a pullback that is an enticing level of which we may not ever see again in Bitcoin's forward-looking history.
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