Welcome to another edition of TA the easy way where we look at the bitcoin price chart to gauge the trajectory at this crucial juncture of the continued ATH of December 2020. If we look at the 4 hour chart, we can see that price is making higher highs and higher lows, which looks like a bull flag or bullish continuation pattern. Price is clearly respecting the 20 MA and climbing.
However, if we look at the RSI, we can see that it’s making lower highs and lower lows, which is a clear bearish divergence. As a result price is likely to collapse into a retrace soon. RSI is no longer overbought, below 70.
The blue upward trending channel will eventually break to the downside. When we see price break below the 20 MA, which coincides with the lower blue line of the channel, we can expect a dip downward. Wait until you see a candle close below the 20 MA in order to time a short position, if you are day trading. At this stage this would mean a break below $23324, but since the 20 MA is moving upward, this may increase every 4 hours as a new candle is printed.
If we look at the volume, we can see that it is declining, which is a good set up just before a breakout. Asian markets have been trading for a few hours already on a Monday morning, so we can see two slightly higher volume candles. Nevertheless, declining volume is evident. We need to see not only the 4 hour candle close below the 20 MA but also increased volume to be sure that the breakout is happening.
As the rest of the world wakes up on Monday morning, trade volume will pick up and the breakout to the downside could occur in coming hours. A target for the dip is hard to predict since price has just pumped massively, but the first support would be $22340, which is the recent lower low at the start of the channel.
Other than that, the next support is obviously back down at the $19500 region, which is just under a 19% retrace or dip in price. This would not be unusual, after the massive pump. However, buying pressure is huge at the moment and so price may not even get that low as the bulls buy up any dips or and bitcoin made available by the sellers.
The RSI clearly suggests a retrace is imminent and I’m expecting a sell-off at this ATH top right now. Let’s wait for confirmation though, in the close below the 20 MA on the 4 hour chart to be certain. Once the candle closes below the upward trending channel, it may dip and then bounce back up to the channel for a retest. That is a good place for a short entry, but you will have to keep a close eye on price to time your exit. In this bullish environment it could be a short-lived dip.
