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After a few months of choppy, consolidating action – bitcoin is setting up for a big move.
It could go either way. But it looks like bitcoin bulls have the edge right now.
That might seem surprising to regular readers…
After all, it was just on September 20 when we noticed a bearish pattern on bitcoin’s chart. The various moving averages had completed a “bearish cross.” And that often leads to a sharp, immediate move lower.
But rather than breaking down, the “King of Cryptocurrencies” has been holding at support. And now, the chart looks more bullish than bearish.
Take a look…
After falling 33% in June, bitcoin has spent the last four months consolidating between about $19,000 on the downside and $24,000 on the upside.
This long, choppy period has allowed all the various moving averages (blue, red, and green lines) to come together. This tells us energy is building. Bitcoin is about to make a big move, in one direction or the other.
The question is, which way will it go?
In most trade setups, I’ll look at a variety of technical indicators to help determine the most likely direction of a coming move. Different stocks respond to different indicators.
So, traders must examine each case individually to determine which indicators have the most accurate predictive abilities on a particular stock. In bitcoin’s case, the most accurate indicator is investor sentiment.
For whatever reason, investors get quite emotional over bitcoin (similar to how investors react to gold).
Folks tend to have a strong opinion – whether strongly bullish or strongly bearish. You don’t find too many people who are “neutral” towards the cryptocurrency. It’s either going to $1,000,000 per coin, or it’s going to zero.
But investor sentiment is usually wrong – which makes it a great contrary indicator. So, when it seems as though everyone is bullish on bitcoin, it’s best to bet on a decline. And when everyone seems bearish, then that’s the best time to bet on a rally.
Right now, it seems like almost everyone is bearish on bitcoin.
Of course, that has a lot to do with the fact that bitcoin has lost 70% of its value over the past year. It also has a lot to do with bitcoin going nowhere for the past four months.
Bitcoin buyers have disappeared. They’ve gotten bored. There’s no action in the bitcoin price. So, traders have moved on to other assets.
Meanwhile, the faithful bitcoin investors have stayed on the sidelines. This year’s decline has been brutal. Even true believers doubt the resiliency of bitcoin. So, they’ve put their purchases on hold.
Heck, just watch the financial television interviews of previously popular bitcoin bulls. They lack excitement and enthusiasm. They’re cautious. While they still believe in the long-term promise of bitcoin, they’re indecisive on the short-term direction.
That is a remarkable shift from the “to the moon” dialogue we heard as recently as this past April.
But here’s the thing… The bitcoin sellers have disappeared too.
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Let’s face it, anyone who was looking to sell bitcoin over the past few months has had plenty of reasons to do so. The cryptocurrency space has been littered with fraud, hacks, security/regulatory concerns, and multiple negative “news” stories.
Yet, at $19,400 per coin, bitcoin trades today at the same level it was trading at four months ago. Despite all the bad news, bitcoin hasn’t fallen.
When a security doesn’t fall in the face of repeatedly crushing bad news, it’s most likely “sold out.” Anyone who may be tempted to sell is already out of their positions. There are no sellers left.
And in that situation, it takes only a little bit of good news to bring buyers back into the market – and force the price of the asset higher.
Admittedly, I’ve been cautious on bitcoin for most of the past few months. The technical picture looked bearish. And it appeared bitcoin was set to break below its support line near $19,000 – and perhaps drop as low as $13,000.
If that was going to happen, then all the negative news in the cryptocurrency market over the past few weeks should’ve been the catalyst for such a move.
But bitcoin didn’t break down. Support is holding. And now, all the moving averages are coiling together – suggesting a large move is coming soon.
My bet is that move will be higher.
There’s no guarantee, of course. But if bitcoin didn’t fall in reaction to bad news – and it didn’t fall in the face of increasingly bearish investor sentiment – then I’m not sure what else is left that can push it lower.
And if it can’t go lower, then just a little bit of buying pressure will push it higher.
Best regards and good trading,
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Jeff Clark
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