Bitcoin (BTC) retraced in the past 24 hours as expected after running into resistance at the top of a descending channel. The above chart for BTC/USD on the 1H timeframe shows that the price can be expected to retrace all the way towards the bottom of this descending channel. However, there are certain key levels of support that minimize the probability of a fall towards the bottom of the descending channel. The first support that the price will run into is the 5 hour EMA followed by the 10 hour EMA. The 5 hour EMA is of little consequence and may be easily breached. However, the 10 hour EMA corresponds to the 38.2% Fibonacci retracement. In addition to that, we have the 21 hour EMA lying just below this level.
These key support levels will make it very difficult for Bitcoin (BTC) to fall towards the bottom of the descending channel. Even if we see the price break below this zone of key supports, we will see the price seriously struggle breaking below the 61.8% Fibonacci retracement level. It is true that investors are eager to take profits at this point as confidence in a strong bullish recovery remains low. However, neither the bulls nor the bears are ready to believe that the price is likely to form a new yearly low at this point. Even if this is not the final capitulation, we have yet to see a retest of the previous market structure around $6,000 before a fall to lower levels can be expected.
Future outlook looks very favorable for BTC/USD in light of recent developments with EUR/USD and the stock market. The trade war is also beginning to cool down and emerging markets are prepared to rally in 2019. That being said, Bitcoin (BTC) is still quite vulnerable short term and the price may be due for another decline in the near future. The bears are still quite confident and we have yet to see a strong decline in the number of Bitcoin Shorts (BTCUSDShorts). The recent rally took most traders by surprise but the bears seemed already prepared for this. They expected the price to correct to the upside short term before it can resume falling again. As Bitcoin (BTC) continues to rally, the bears are going to get relentless. Some are expecting the price to decline from $4,500 and some from slightly higher levels.
This strong desire or wishful thinking to see the price decline aggressively from a certain level is no different than seeing the price rise aggressively from a certain level. Seeing as most retail bears are expecting this sharp decline around the bottom, it would be reasonable to say that these retail bears are no different than the retail bulls who expected the price to rally around $18,000 when it was about to top out. They might be categorized as bulls or bears but they are practically the same kind of traders i.e. the ones trading on sentiment. As Bitcoin (BTC) continues to rally under overbought conditions, most retail bears are going to enter short positions in anticipation of a sharp decline. That is when we will see the whales trigger a short squeeze which will obliterate the bearish resolve and pave way for the beginning of a new bullish cycle.