The technical setups posted below use simple trend detection, support and resistance, channels, pattern and candle analysis. We aim for high-probability trade setups on BTCUSD, and use very few indicators. All charts use BNC’s Bitcoin Liquid Index for maximum accuracy.
The timeframe for trades is 1 to 7 days, so we’ll use 4h candlesticks. Bitcoin is best traded as a purely speculative commodity on 4h+ timeframes.
This section is based on internal (anonymized) Whaleclub trading data and is published exclusively on BNC.
Current Active Long vs Short Volume Ratio: 0.82:1
Average Active Long vs Short Volume Ratio: 1.9:1
We have a 20% excess in active short volume relative to the average. The average weighted short entry price is $417.7, which is much lower than the current market price - this means that on average, active shorts are very much underwater. This is a significant revelation: these underwater shorts can help fuel a strong short squeeze and propel price upwards.
Sentiment is bullish like last week - but the underlying data has evolved. Large amounts of longs have closed as they banked on Sunday’s $10 price pump. If price breaks up above the key $435 trendline, which has held strong, and bears keep expecting a price dump and opening short positions, then we may see a broader short squeeze.
Macro Key Points
This section is an overview of news headlines or events that may affect BTCUSD.
Most of the press in the cryptocurrencies world this week focused on the blockchain and Ethereum rather than on bitcoin itself.
One particular highlight is the reported decrease in venture capital invested in pure bitcoin companies - almost none in 2016. Investors are becoming more risk-averse when it comes to bitcoin-only companies as they try to seek out proven business models, rather than theoretical use cases.
The block size debate is still making headlines. Bitpay came out with their own scaling proposal, “Adaptive blocksize”, but observers do not think this will push the debate forward in any meaningful way.
Again this week, we’d like to issue a reminder about the the bitcoin block reward halving which is estimated to occur on July 10, 2016, less than four months from now. The supply will halve - and assuming demand remains the same, the post-halving value per bitcoin is around $850. Extrapolating this based on the current market price, the present value of one bitcoin is around $215 - an attractive entry price.
4h+ Timeframe Setup
Our key daily support and resistance levels are left almost untouched since last week as we nailed our previous predictions almost perfectly. Price has consolidated between daily support area around $405 and daily resistance area around $430. Our latest daily green candle cannot get more bullish, which may indicate that price is ready to break above the $430 level.
As for trend lines, our squeezers and pennant from last week are still valid. We have both supporting and resisting levels in a triangle formation converging around the $430 level, with current lows at $400 and highs at $450.
Now let’s switch to the 4h timeframe to dig a little deeper. Our daily trend lines and S/R levels are preserved.
We detect a solid support level in the consolidation area but also strong resistance levels around $445 and $450 with multiple touches on previous price highs.
The analysis is quite simple here. We envision multiple breakout scenarios where price continues its bullish upswing powered by more shorts closing (short squeeze), with temporary pauses and pullbacks around key levels $435, $440, $445, and $450. Ideally, the largest breakout plays out with a fade around $455 where early longs take profit.
We also envision a potential reversal that brings price back down to the lower trendline level in a full retrace of Sunday’s pump, with a price target of $415. However, we view this scenario as unlikely to happen - after a long period of drifting, the market has chosen a direction (up), signalling the beginning of a new trend.
There is no scalp setup recommendation this week. We advise traders to play the higher timeframe swings since the market seems to have broken up into a bullish trend. These will almost certainly result in better returns.
The highest probability scenario is to play the breakout trade described in the section above. For additional confirmation, you can wait for price to clearly break above the $430 consolidation area, and place limit orders to buy $430 once that occurs, with $440 (short-term) and $450 (longer term) targets. For further confirmation, you can wait for price to retouch those resistance-turned-support levels before entering your buy orders.
The gold arrows below represent possible entry points for your trades.
An alternative trade setup is to wait for price to fade back into the market range area between $416 and $420. It is common for price to retest consolidation areas such as these - however we see this as a lower probability scenario.
Sentiment-wise, our underwater shorts can help propel price further upwards. The macro-bias is still bullish with the halving on the horizon and the limited downside favors those who go long. So we see going long at the above support levels and trading the breakouts as the highest probability trades.
This Technical Analysis was done using the Bitcoin Liquid Index for maximum accuracy.
Disclaimer: This is not financial advice. The information presented in this post is an opinion and is not purported to be fact.