Bitcoin Price Analysis - Waning bullish momentum

Bitcoin has been trading between ~$1150-1230 this week, according to the BLX, on waning bullish momentum. Total Network Hashrate continues to make all-time highs, despite the ongoing scaling debate. The Network Hashrate increased 4.24% on about April 13th, increasing 51.58% year to date.

Miner support for Bitcoin Core’s SegWit proposal and Bitcoin Unlimited has vacillated over the past week, with Bitcoin Unlimited continuing to show stronger support amongst Miner’s.

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Nodes, however, remain heavily in support of SegWit, with rising signalling of a user-activated soft fork as well.

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Recently, Wang Chun, head of F2Pool, has decided to signal for SegWit. F2Pool contributed for ~11% of Bitcoin hashing power over the past week.

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Japanese trading volume continues to hold its domination over total traded volume.

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It will be interesting to watch Tether (USDT) volume moving forward as more and more banks will likely crackdown on these pairs due to fears they avoid certain Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. Wells Fargo recently blocked a $180 million dollar transfer from Bitfinex, which Bitfinex challenged and later rescinded. It’s unclear what this means for USDT traders in the future, or these pairs.  

Technical Analysis

The Ichimoku Cloud is a constant, auto-drawn indicator which quickly offers an immense amount of valuable information on any timeframe. The Cloud is best used at higher timeframes 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. The best entry signals for the Cloud occur when the trend is obvious, but 1 or 2 of the signals have yet to become confluent with a higher timeframe trend.

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On the daily time frame, twice in the past four months, a yet unnamed type of Cloud signal has occurred where the TK cross is bearish and price is above Kijun (marked in yellow). The signal can be thought of as a type of bearish divergence.

This indicates that price has risen at a speed faster than the Tenkan can catch up to Kijun. This could be interpreted as price being overbought. It can also be interpreted as the probability of price continuing to rise being lower than the probability of a pullback or sideways consolidation until Tenkan cross over Kijun, completing the bullish TK cross. Traders will expect price to return to Kijun, especially if the Kijun is flat, as was the case on two occasions. This TK cross will likely not occur above the Cloud, which is the strongest bullish continuation signals in the Cloud system, but will likely occur nonetheless.  

Expect price to continue to fall to the mean over the next week, Kijun, and bounce upwards on Cloud and Kijun support. There is a building flat kumo at $1035 which will also act as a magnet for price. These flat kumos occur when price is bound to a smaller and smaller range without higher highs or lower lows. The longer the flat kumo, the higher the probability that price target will be reached.

There is also the possibility of an edge to edge trade. The entry signal for this trade would be a candle close below Cloud support. The target for these trades is always the opposite edge of the Cloud, no lower. The same pattern occurred in February, although there was no candle close in Cloud support, which pulled back on the announcements of additional Chinese regulation.

For long entry signals, traders will wait for the bullish TK cross with price support on Cloud and Kijun while remaining above the Cloud. The last signal to watch is the LS (marked in teal) which should also be above price and Cloud.

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On the four hour time frame, there is also a setup for an edge to edge trade from $1170-$1060.

The entry signal for this short trade would again be a candle close in Cloud support. This will likely occur after or during the bearish TK cross. A stop for this trade would trigger if a bullish TK cross should occur before price reaches the other edge of the Cloud. Furthermore, this is the first time frame where a potential bearish continuation chart pattern, the bear flag, is present.  

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The Pitchfork is another way to assess direction and targets in a trend. There are many Pitchforks that have occurred since the beginning of the trend in 2015. The median line (red) 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.

The Pitchfork above is drawn from the August extreme low (not shown) and the previous local high and local low. Currently, price is sitting and consolidating at the median line of the Pitchfork. This level should be thought of as maximum reward potential. Price has essentially the entire pitchfork to range in either direction. If we decide there is a current bearish bias, our diagonal supports are easily identified (green), the first being $1070-$1080.

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Before price broke down, there was a period of consolidation or stagnation in price movement. When this occurs, traders often turn on the Bollinger Bands (BBand) to better understand when a substantial move should occur. When bands squeeze, expect increased volatility, and when bands bulge, expect decreased volatility. More on Bollinger Bands here, from John Bollinger himself.

On March 16th, there was a squeeze to a similar degree, which can be seen more clearly with the Bollinger Band Width (BBW) indicator. With that BBand break, there was a quick large increase in BBands. That has not yet occurred with the current BBand break although BBand squeezes and breaks of this caliber have had large bulges in recent past. This suggests a potential for further bearish continuation, especially the longer price remains below the 20 period moving average.

From March 17th - March 25th, the spot price made a lower low with a higher low in momentum on the Relative Strength Index (RSI). This is known as a bullish divergence, or a signal of waning bearish momentum. At first glance it appears present but minimal on RSI. However, using an indicator measuring the percentage of price above or below the bands (BB%), the bullish divergence becomes much more apparent. This W bottom is the type of pattern traders will look for on the next drop, should it occur. RSI is not yet in oversold territory so the bullish divergence may not occur. Until the BBand bulge with bullish divergence and W bottom does occur, expect bearish continuation over bullish reversal.

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The bearish shark harmonic has completed, seen here on the four hour timeframe, and continues to project a target of ~$1000-1050.

With harmonics, it’s easy to get stuck on every pattern having the exact values as recommended on every cheat sheet. However, just because the values do not match exactly, does not mean the pattern does not exist. This can be interpreted as the pattern having a lower probability of completion, but not invalidated entirely. Harmonics, especially with Bitcoin, need a little wiggle room, and some faith, to remain active and valid.

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On the two hour time frame, 80% of the trend or more, from bottom to top, was completely captured by the Cloud at adequate speed without any false positives. This is a textbook trend for trading with the Cloud.  

The kumo breakout with bullish kumo twist occurred on March 29th. This will have been interpreted as a very strong long entry signal. The LS was the only remaining signal to flip bullish, which did so on March 31st. At this point, cloud traders will typically have been heavily long with the remainder of the trading account as bids on the kijun.

Traders also need to have the confidence that this is the time frame the given asset prefers to trend on. Bitcoin typically has strong actionable Cloud signals on the one, two, or four hour time frames when trending.

The stops would be triggered with a price close below Cloud support, or a bearish TK cross. In a strong trend, dips below the tenkan above the kijun can also be interpreted as a buy signal. The end of the trend begins to pan out when price makes higher highs on less and less momentum.   The RSI is one such momentum indicator. Volume or On Balance Volume are a few others. As the bearish divergence grows, this suggests that the probability of bullish continuation is less and less. A bearish divergence coupled with a bearish TK cross (yellow) and a candle close in Cloud support should be interpreted as a strong long exit signal.

The short entry signal would trigger if; Cloud twists bearish, price is below Cloud, and LS is below Cloud and price. TK is already bearish.

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Lastly, on the fifteen minute time frame, there are several mixed and incomplete patterns and signals.

There is evidence for an incomplete bullish reversal pattern, the inverted head and shoulders, with matching descending volume profile. Should this break neckline resistance (red), the measured move is ~$1240. There is also another bullish reversal pattern, the Adam/Eve double bottom, with matching descending volume profile. However, all of this is contained within a larger bear pennant, as stated above.

Conclusion

The SegWit and BU scaling debate rages on. Price has had a bearish pullback on technicals with likelihood of continuation. Ichimoku Cloud, Pitchfork, and a Berarish Harmonic are indicating support from $1000-$1080. High time frame Cloud signals will be the best bet for entry and exit signals, short or long.