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Consolidation Continues as Traders Await Bitcoin's Next Big Move
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This past week, the cryptocurrency market experienced more low-volatility trading with Bitcoin (BTC) and most majors trading within a tight range.
This type of consolidation suggests a big move may be on the horizon and the technicals are leaning bearish.
Since the top three followed Bitcoin this week, we’ll be taking a deeper than usual look into BTC.
Bulls and bears sit on the sidelines
With declining volumes and low volatility, it’s clear that market participants are showing very little interest in BTC at the moment.
It feels like bulls and bears are both waiting for a catalyst to set a new trend. Many thought this past week’s announcement of CBOE’s withdrawal of its VanEck-SolidX Bitcoin ETF product would act as a bearish catalyst.
But the news actually had very little effect.
This past week, BTC hit a high of USD3,614 and a low of USD3,425, with most of the week’s trading occurring between USD3,530 and USD3,600.
BTC’s 1-hour chart (below) shows multiple strong rejections off the 200 EMA (green line). The EMA rejections combined with BTC volume (more volume on downward price movement) suggests the bears are still in control.
With that said, the lack of volatility and the relative lack of a market reaction to negative news indicates that bears may be getting complacent.
On BTC’s 4-hour chart, we can see a descending channel formation highlighted in red.
Zooming out, it’s clear that December 7th’s large bullish candle was simply a low-volume bull trap with price quickly falling back within and testing the bottom of the descending channel.
On the 4-hour chart, the 200 EMA (green line) is a key indicator to watch. The descending channel seems to be somewhat confluent with the 200 EMA.
In terms of bearish price action, a key level to watch is the USD3,425-3,450 range. This level represents a previous resistance range, and has held up for bulls with strong rejected lower wicks.
However, if BTC continues its descending channel, another imminent retest is possible.
Possible double bottom in sight
With so much downward pressure and lack of established support levels between USD3,400 and USD3,120, a double bottom is definitely a possibility.
On BTC’s daily chart, we can see what looks like a bearish pennant.
Last week, we highlighted the same formation on the 4hour-chart as well. Looking at the image below, it appears the pennant has broken to the downside.
At the moment, it’s unclear if this is actually a bearish breakout or simply consolidation inside a larger pennant, so be sure to keep an eye on how price plays out over the next few days.
If this bear pennant is valid, traditional technical analysis puts a target in the USD2,000 range (approximately a 50% drop), which coincides perfectly with BTC’s first support level in mid-July 2017 at the start of the bull-run up to USD20,000.
BTC may not actually fall that low because there are many factors at play here, but the confluence with a previous major support level is something interesting to keep in mind over the mid-term (next 3-4 months).