After long period of consolidation Bitcoin price breaks downward

CoinDesk analysis

On CoinDesk, Omkar Godbole analyses the price movements of Bitcoin (BTC) for January 28. His article was last updated at 11:37 UTC. Godbole notes that Bitcoin just ended a two-week stretch during which it consolidated with a break down to six-week lows early today.

Bitcoin fell below $3,470 early today at 04:45 UTC and confirmed a break downward from a triangle pattern. The break continued downward to a bottom so far of $3,367 according to Bitstamp data. This is BTC’s lowest level since December 17.

After a long period of consolidation as has happened with BTC, the move in the breakout direction is often large. As an example BTC ended a long period of trading within a narrow range with a move below the $6,000 level on November 14 last year. This was followed by a huge sell-off that brought the price down to below $4,000. However, BTC’s recent consolidation was not as long as with the November drop. The magnitude of the drop will likely be smaller as well. There is no sign yet of anything like the huge November drop.

However the present decline could very well test December lows near $3,100, since the primary trend is to the downside as shown by the downward tending 10-week move average (MA).

Another bearish signal that makes their case even stronger is the failure of the bulls to breakout over the weekend. On Saturday prices moved in their favor with a move to $3,658 creating a triangle breakout. However, there was a failure to follow through and the price fell back to $3,500 on Sunday. Another factor to consider is that since November the price of BTC has been inversely related to that of gold but gold has recently risen as it found acceptance over $1,300 an ounce on Friday.

As the Godbole article went to press, BTC was trading at $3,430, a 3 percent drop over 24 hours.

Chart analysis

The daily chart shows BTC formed what is called a gravestone candle, a bearish sign. The candle is formed when the day begins positively and closes flat at the day’s end. Another bad sign for the bulls is the drop to six-week lows early today. The path of least resistance appears to be clearly downwards. Only if the price rises above $3,658 will the bulls have much to cheer.

The 4-hour chart shows that the price of Bitcoin has now found acceptance below the lower edge of the triangle. The chart also shows that there has been a Bollinger band breakdown with the price convincingly below the lower band. However, the RSI is reporting oversold conditions so that BTC may rise and revisit $3,500 before declining again to test the December lows.

The weekly chart shows the 10-week moving average is still declining a positive sign for the bears. However, there are some signs of indecision in the market as last week showed a classic doji candle. The sustained drop in trading volume as well shows that there is perhaps some exhaustion on the part of buyers. If BTC ends this week above the doji high of $3,658 then the tide could turn in favor of the bulls..

Godbole’s view

Based on his technical analysis Godbole believes: BTC risks falling to the December low of $3,122 in the next few days, having confirmed a range breakdown with a drop to six-week lows today. A downward move could be preceded by a minor bounce to $3,500, as the RSIs on the 4-hour and the hourly chart are reporting oversold conditions. The outlook would turn bullish if the oversold conditions on the 4-hour RSI end up yielding a convincing move above $3,658 (the high of both the gravestone doji and the classic doji).

Present situation

24 hours ago BTC was trading at $3,482 according to CoinDesk data. Since then the high has been just $3,483 but the low dropped down to $3,374 below $3,400. However, at 21:35 Central Standard time, the price has recovered to just above that level at $3,409. The price has not reached quite as high as $3,500 as Godbole suggested it might but neither has there been a drop yet to bring the price near the December lows. Perhaps we will see a period of sideways trading again for a while. The present price of Bitcoin can be found here.

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