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stock_chart_squareAfter ten months of decline, the only option for the Bitcoin price seems to be more downside. Analysis considers the state of the decline and defines confirmation signals for trend in the months ahead.

Bitcoin Price Chart Overview

Two channels of price action imply two very different paths for price:

Bitcoin 2 channels log chart 27 sept 2014

The red channel, at first glance, seems to be the logical choice and implies a decline low around $200. If price does not break below the purple channel‘s lower trendline (with a caveat – see below) then, we face the prospect of an immediate advance.

Fortunately, we don’t have to guess because price will show us the way. The current price juncture – at the tipping point between blatant bullish and bearish scenarios – allows us to define clear confirmation signals of impending price action.


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Bitcoin Price Support and Resistance

The following Bitstamp daily chart has been annotated with support and resistance levels. The S/R levels are not exhaustive – only the most salient levels are shown to preserve clarity.

Bitcoin crash s&r chart 27 sept 2014

Notice the pivotal role of the $500 level throughout the corrective decline. Having served as support (circled in magenta) during the first leg of decline to $340, the $500 level then became a pivot (circled in red). The second leg of decline unfolded around the $500 pivot – with long-running $380 acting as lower support.

On Friday 19 September, price action bounced off the support floor at $380 and has since maintained a slightly advancing trajectory. The wave structure can be interpreted as a consolidation before trend continues below $380, or the Bitcoin price may be coiling up prior to advancing on $500. Clear enough – perfectly ambiguous. The alternatives are unpacked below.

Bitcoin 4-hour Chart

Bitstamp 4h chart 28 Sept 2014

At the time of writing, price action is approaching the supporting orange trendline (lower purple channel trendline in the weekly chart, at top). Previous analysis updates had argued that a break below this trendline implies continuation of the downtrend. The case is being redefined today because of the duality of the present juncture between extreme bullish and bearish scenarios.

Bearish Confirmation

If trend is indeed about to resume the path of decline then we require more confirmation than a simple breach of the orange support. Trade may, for example, break below the orange support only to return above it and advance. It would be prudent to allow price to demonstrate that it is not making a double-bottom at $378. Additionally, wait for a 4-hour candle to both open and close below the $380 support level (on the Bitstamp chart) before building a short position targeting $300 and below.

Bullish Confirmation

As can be seen in the chart above, the Bitcoin price is currently trading below the green 20-period moving average (20MA).

Bitcoin price advance from a decline low has an established mechanism whereby a falling 20MA is leveraged to slingshot to a falling 200MA. Here are examples (circled in blue) from 2012 and 2013. The examples are drawn from the Bitstamp 4-hour chart.

Bitcoin_MAs_advance_28Sept2014

In both cases, price establishes trade above the 20MA and then targets to the 200MA. Once atop the 200MA, advance to new highs can proceed.

If we are indeed at a decline low then, we will expect price to conform to this pattern of advance – not in the exact same manner, but with allowance for variation. For example, in the 2012 example, price climbs on top of the 20MA, corrects to below it and then re-establishes trade above the 20MA and achieves the 200MA. Similarly, in both examples, there are similar patterns, circled in orange, that scale the 20MA and then the 200MA – only to resume the decline since correction was not yet over. We should make allowance for this outcome too – never assuming that price action will unfold the same way twice.

Although there is a historic preference for the 200MA, advance may target any of the levels shown in the current 4-hour chart.

Summary

The Bitcoin price is currently at a critical juncture with strongly bullish and bearish potentials. We have identified levels and price action signals that will serve as confirmation of trend direction and dictate our trading actions in the market. At the time of writing we await more price action. Advance above the 20MA will open up the 200MA near $460. Decline below $380 – accompanied by the opening and closing of a 4-hour candle below this level, will herald continuation of the decline.

[divider]CCN[/divider]

CCN hosts a summarized Economic Calendar showing the week’s main data releases.

Readers can follow Bitcoin price analysis updates each weekday on CCN. In-depth analysis articles are published every Sunday.

Disclaimer

The writer is fully invested in Bitcoin via BTC-e and Bitfinex. Trade and Investment is risky but not as risky as some other things out there. Take care only to take action in the market when you are 100% sure of the outcome. CCN accepts no liability whatsoever for losses incurred as a result of anything written in this Bitcoin price analysis report.

Bitcoin price charts from TradingView.
Images from Shutterstock.

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Posted by Venzen Khaosan

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect.

He has found a solution to the PKI mechanism. Email me to discuss.