Bitcoin Price Analysis – Bullish signals stacking up

The People’s Bank of China (PBoC) has been silent regarding anything bitcoin, which may change immediately and abruptly if new All Time Highs (ATH) are reached in CNY terms again. The PBoC may continue with regulations and crackdowns targeting bitcoin.

The PBoC, amongst other central banks, are investigating  how they too can use blockchain technology to their benefit. At this point, if you can’t beat them, join them, is likely central bankers thinking about the issue. While no one knows what Central_Bank_Coin may look like in the end, but it won’t likely include a public ledger, or a cap on the total number of coins available.

SegWit signalling continues to motor along at 25%, largely unchanged over the past several weeks. The question now becomes whether the network will be strained with the current block size, and if the price can continue to make new ATHs without a soft fork adjusting the protocol and allowing for more transactions per block.

We draw ever closer to the Winklevii COIN ETF SEC decision on March 11th. Nothing to do at this point but wait and see, as there is no way to know one way or the other if the ETF will be approved.

Long Term Technical Analysis

Longer timeframes always provide the overall trend, while using Ichimoku Cloud and four key indicators can offer more detail. As long as price remains above the cloud, sentiment remains bullish. A bullish TK cross reoccurs above cloud is an extremely bullish continuation signal. When the Tenkan (T) is over the Kijun (K) sentiment is bullish. When the Lagging Span (LS) is above the cloud and above the price sentiment is bullish.

Ideally, all four of the signals will match as a candlestick closes, indicating an excellent entry point. This is the optimal entry for the Ichimoku Cloud system, which is designed to capture 80% of any given trend. For the most part, the bullish cloud and bullish TK cross occur before price is above or below the cloud. The first candle close above or below the cloud is referred to as a kumo breakout.

All four signals are bullish on the weekly chart. So there isn’t a great signal on when to re-enter long if you’re not currently in a trade. On the daily chart however, only two of the four signals are bullish.

The combination of indicators is currently heavily bullish, with one signal yet to confirm. This gives us a rare opportunity for a bullish TK cross above the cloud on the daily timeframe, a TK cross-recross, which can occur on any timeframe. The first TK cross is a signal to close your current trade signal, and the second TK cross indicates that it’s safe to re-open your trade.

Bullish TK crosses that occur above the cloud and bearish TK cross that occur below can be thought of as strong continuation signals, similar to a cup and handle or flag and pennant. Bullish TK crosses below the cloud indicate that short trades should be closed. Bearish TK crosses that occur above the cloud indicate that long trades should be closed.

Bullish TK crosses have only occurred above the cloud a few times on the daily timeframe in Bitcoin’s history, which can be verified on the BNC BLX. It has occurred in only two settings; sideways consolidation and post bull/bear rally. However, the TK recross does not always occur. Here are how these have played out historically:

January 2011 – Sideways Consolidation

Bullish TK recross occurred above cloud, bullish continuation signal leads price.

April 2011 – Post Rally

Bullish TK recross occurred above cloud, bullish continuation signal leads price. Overall, a questionable cross because T and K lines are touching during this period. When this happens, move to a lower timeframe for a faster signal.

June 2011 – Post Rally

Rally with bearish TK cross but no bullish TK recross, ie, there was no signal for continuation after pullback and a bear trend commenced with no possibility of a bullish TK cross.

September 2012 – Post Rally

Bullish TK recross occurred above cloud, but price fails to breach the double top. TK recrosses bearish and then recrosses bullish before the next rally to $270.

April 2013 – Post Rally

Rally with bearish TK cross but no bullish TK recross, ie, there was no signal for continuation after pullback and a bear trend commenced. You can also see a bullish TK cross with a bearish TK cross below the cloud, a bearish continuation signal that lead price.

January 2014 – Post Rally

Bullish TK recross occurs inside the cloud but price fails to breach the double top. Because the cross occurred in the cloud, this should be seen as a weaker possibility of continuation.

August 2015 – Post Rally

Rally with bearish TK cross but no bullish TK recross. No signal for continuation after pullback

December 2015 – Post Rally

Bullish TK recross occurs inside the cloud but price fails to breach the double top. Because the cross occurred in the cloud, this should be seen as a weaker possibility of continuation.

February and April 2016 – Sideways Consolidation

Bullish TK recross occurred above cloud, bullish continuation signal leads price. It’s not impossible to see the TK cross-recross occur quickly more than once, it just usually doesn’t happen on the daily timeframe. The correct way to play this is to go long every TK recross regardless of price position.

July 2016 – Post Rally

Rally with bearish TK cross but no bullish TK recross, ie, there was no signal for continuation after pullback and a bear trend commenced. The TK recross even preceded the news of the Bitfinex hack.

Any other rally or trend in Bitcoin’s history on the daily timeframe has shown the kumo breakout to be the optimal entry signal correlating with cloud and TK cross. So that brings us back to the current price and trend. Price is already above cloud, post-rally, and forming a potential bullish TK recross, which should occur above cloud considering Kijun is above cloud.

A post-rally, bullish TK recross above the cloud has really only occurred twice in bitcoin’s history; April 2011 and September 2012. It’s occurred four times if you add the recrosses that occurred just below the top of the cloud; January 2014 and December 2015. In three of these four instances the price made a double top, failed to breach the previous local high, and either entered a bear trend or recrossed bearish, then bullish again for another rally. While it is unlikely that a parabolic trend will ensue, as we saw in April 2011, it cannot be ruled out.

The analysis illustrates that post-rally bullish TK recrosses above cloud have not been the most consistent continuation signals. 75% of the time, with a limited data set, they have gone nowhere. However, post-consolidation bullish TK recrosses above the cloud have been extremely strong signals for bullish continuation.

Medium Term

On the four hour chart a Kumo breakout has completed, albeit sideways, and gave 4 candles worth of long entry signals, with price above cloud, bullish cloud, and bullish TK cross.

Once a new Pitchfork is drawn, the median line (ML) diagonal acts as a magnet for price. So as soon as the pitchfork was drawn, on January 12th, the ML became the target. The kumo breakout also occurred in the setting of pitchfork diagonal support, and can be seen as confluence for a long entry.

As per pitchfork trading, once the ML has been reached the price can move quickly, which is currently unlikely as the market is overbought on the oscillators. Consolidation appears to be most likely to occur, as the oscillatorsreturn to neutral and then reach for the next diagonal resistance, around the previous local high ($1150-$1180).

There is also an inverted head and shoulders, which is a reversal pattern with a descending volume profile and a measured target of $1081. This target also matches the ML of the pitchfork and can be seen as confluence of resistance. The trajectory to the target may or may not continue on its current course, but the target remains.

Conclusion

Expect a bullish TK cross above the cloud but watch for the double top at the previous local high, which based on Bitcoin’s history is more likely than not. A PBoC announcement as price reaches for new ATHs would be icing on the bear cake. SegWit signalling increasing dramatically, past 25%, or rumblings of COIN ETF SEC approval would be very bullish, likely enough to breach the double top.