Remember that time I said BTC-USD likely won’t see a new all time high (ATH) any time soon? Looks like I was wrong. Shortly after posting my previous BTC-USD analysis, in a matter of one hour, the price of BTC-USD not only broke its record high, but it surpassed it by $200 after ultimately settling in the $3200s. As of this morning, BTC-USD pushed another ATH of $3440 on Bitfinex marking a $600+ in less than a week. Let’s take a look at what these moves can possibly mean for BTC-USD and if these moves are sustainable.
Starting in the $160s, BTC-USD has been on a massive, multi-year bull run:
Figure 1: BTC-USD, 3 Day Candles, Bitfinex, Macro Bull Trend
If we plot the trend using $3440 as the top of this trend, a lot of historic support and resistance levels start to make a lot more sense within the context of the market. Our move to the $1800s marked a test of the 50% retracement line, our battle over the $2600s marked the various tests of the 23.6% retracement line and now our ultimate sudden rush to new highs can be seen as the 100% retracement line.
Keeping the same Fibonacci Retracement Lines and zooming into our daily trend, a few observations immediately pop out:
Figure 2: BTC-USD, 1 Day Candles, Bitfinex, Macro Bull Trend, Zoomed In
There is an obvious price increase on the long-term trend;
Our recent run from $1800, however, has seen decreasing volume on every leg up;
The multi-period MACD and current MACD histogram both show Bearish Divergence; and
The RSI is showing Bearish Divergence.
If we take a closer look to the market post-$1800s, we see a similar trend of divergence even on the smaller timescales:
Figure 3: BTC-USD, 6 Hour Candles, Bitfinex, Current ATH
The uptrend in price is, once again, accompanied on decreasing volume;
The 6HR is strongly diverging bearishly;
The RSI is showing strong bearish divergence; and
The 6HR Bollinger Bands show several candles fully formed outside the upper band (shown in the circle).
For those who are unfamiliar with Bollinger Bands: Simply put, they are a strong tool used to visualize market volatility. Typically, when a market is near the edge of the upper band, it is considered “overbought,” and when it nears the edge of the lower band it is considered “oversold.” When a market punctures a band it will typically yield a pullback to a trend within the bands, and when a candle is completely formed outside the bands it is usually a strong sell or buy signal — a sell signal in our case. You can think of the Bollinger Bands like a set of rubber bands: the tighter you stretch a rubber band, the harder the reaction. Typically, this is the case for markets that puncture the bands and especially for those that fully form candles outside the bands.
Looking at our current Bollinger Band trend, one might be tempted to say, “BTC-USD appears to be pulling back within the 6-Hour Bands — looks like a healthy move upward is still in the cards.” However, if we zoom out and look back through the history of BTC-USD and its interaction with the 1-Day Bollinger Bands, we can see a clear market trend.
Figure 4: BTC-USD, 1 Day Candles, Bitfinex, Bollinger Band Trend
Above are several historic examples of BTC-USDs reaction to a puncturing of the 1-Day Bollinger Bands. More often than not, a puncturing of the bands — whether the lower or upper band — is greeted with a market pullback. The stronger the break of the bands, the stronger the pullback. The strongest breaks of the bands have a very strong tendency to return to the middle line of the Bollinger Bands (the dashed line) before continuing its trend up or down.
If there is so much damning evidence of a pullback, why does the price keep rising? Fear of Missing Out (FOMO) is unpredictable and irrational. FOMO can push markets well beyond what Technical Analysis can predict and often defies market indicator signals. With all the hype surrounding the recent hard fork, and the influx of money coming from people cashing out their Bitcoin Cash where does this leave us? There is a mountain of evidence suggesting this market level is unhealthy and highly overextended; it needs either to consolidate considerably or retrace. BTC-USD is tightly wound and there is very little, if any, sign of health within its most recent market moves.
I’m not saying the market won’t continue to the pump even higher than it is currently — Goldman Sachs has a price target of $3600, after all. However, with each hike in the BTC-USD price, we are increasing the likelihood of a strong pullback and ultimately a return to the center of the Bollinger Bands.
On all relevant timescales, BTC-USD is showing strong signs of an overextended market.
The Bollinger Bands have several candles fully formed outside the upper bands on the 6 HR, 12 HR and 1 Day Candles.
Historically, when the 1 Day Bollinger Bands are punctured, there is a market pullback.
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