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Bitcoin Price Analysis – Longstanding support holds

After closing down almost 25% last week, bitcoin has recovered almost 75% of the loss, and is now comfortably back above $2000. The wildly volatile week followed more than 25 days of consolidation. The last consolidation period of this length was in June and July 2016. Both periods resolved with large down days followed by a quick reversal.

After closing down almost 25% last week, bitcoin has recovered almost 75% of the loss, and is now comfortably back above $2000. The wildly volatile week followed more than 25 days of consolidation. The last consolidation period of this length was in June and July 2016. Both periods resolved with large down days followed by a quick reversal.

Bitcoin Price Analysis July 19 2017 1

The Bitcoin network hash rate has also varied violently recently, spiking to over 6 trillion GH/s since the last difficulty adjustment on July 14. The last adjustment added 13.53% to difficulty, making the cumulated change +97.35% since January.

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Nodes signalling for UASF/BIP148 continue to rise, despite about 75% of blocks now supporting BIP91. The Bitcoin Improvement Proposal lowers the activation threshold for SegWit from 95% to 80%, and initiates activation within 336 blocks instead of the 2,016 required by SegWit/BIP141.

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At this point, after years of debating scaling size and solutions, this resolution should be welcomed by miners, users, and speculators alike. Even still, a “contingency plan” for UASF, named UAHF or “User-Activated Hard Fork,” continues to be promoted and touted by miners and proponents of increased block size. UASF activates on August 1st.

In the meantime, Bitcoin transactions per day recently peaked around 320,000, and pulled back with price consolidation.

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The Mempool size, or transactions waiting to be confirmed, has dropped precipitously in recent days as well.

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Global OTC volume shows a similar pattern, having pulled back from recent highs, which is to be expected during periods of consolidation.

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On the exchange side, USD and JPY continue to account for the majority of Bitcoin trading volume, with Bitfinex and Coincheck holding top volume in each country respectively.

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Technical Analysis

The Ichimoku Cloud is a constant, auto-drawn indicator which quickly offers an immense amount of valuable information on any time frame. The Cloud is best used at higher time frames as more data generally provides more accurate signals and less false positives.

The indicator uses moving averages and dynamic support and resistance to make projections of key zones, as well as capturing 80% of any given trend. As long as the price remains above the Cloud, sentiment remains bullish. Price in the Cloud indicates a neutral trend, and below the Cloud indicates a bearish trend.

When the Tenkan (T) is over the Kijun (K) sentiment is bullish. K over T would indicate bearish sentiment. When the Lagging Span (LS) is above the Cloud and above the price sentiment is bullish, below the Cloud and price would indicate bearish sentiment.

On the daily chart, price has perfectly traversed the cloud twice now, finding support and resistance on the respective edged. The cloud itself represents a no trade zone and should be thought of as an uncertain future overall. Until price breaks above or below the cloud no further trades should be taken. The Kumo Breakout, would be the first indication of actionability, followed by the remaining signals aligning for further confluence.

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On the four hour chart, signals are mixed, but again, a Kumo Breakout with bullish TK cross would be the first indication of a long entry signal. I would also watch for the four hour 50/200EMA cross as bullish confluence. The last two such crosses proved to be extremely accurate signals.

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Next, let’s review the high probability support targets of the trend so far.

Price has never closed below the weekly Kijun or daily 200EMA, despite events such as: developer Mike Hearn selling all his coins and making sure everyone knew about it (January 2016), Bitfinex being hacked (August 2016), the People’s Bank of China (PBoC) unleashing additional regulatory burdens against Chinese traders (January 2017), COIN ETF denial by SEC (March 2017), or current SegWit miner shenanigans (July 2017).

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Price has also rarely closed below the ML of this pitchfork since 2015. The median line (red) of the Pitchfork gives the expected mean of the trend. Price will continually attempt to return to this diagonal. Each diagonal of the Pitchfork can be thought of as a potential reversal zone or support/resistance line. The upper blue diagonal zone being ‘most overbought,’ or the top bounds of the trend, and lower blue diagonal zone being ‘most oversold,’ or the bottom bounds of the trend.

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Drawing a new pitchfork, using the Bitfinex hack as the anchor low, and the pre-PBoC announcement high and post ETF rejection low, yields the beginning of a similar pattern. I would consider this pitchfork valid based on the number of times the diagonal support/resistance have been respected.

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This would leave price hanging in the upper blue quartile suggesting there is a higher likelihood of downside than there is upside potential.

There is also potential inverted head and shoulders based on price structure, albeit unlikely due to the lack of descending volume profile. Nevertheless, this would yield a target of ~$3000. The structure also respects the yearly pivot supports almost precisely.

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Conclusion

Thanks to BIP91, SegWit seems all but guaranteed now without a UASF. However, the ongoing threat of a hard fork looms. Longstanding high time frame support has held after a bearish resolution to a period of extended consolidation. Trend remains intact. For bullish entry signals, look to the daily and four hour cloud. There is also a potential but unlikely inverted head and shoulders forming, with a measured move target of ~$3000.


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