As this is my first post of the new trading year, I thought it would make a change to start with an analysis of Bitcoin which has been having a torrid time over the last few weeks and the holiday period, to see what we can glean from the slower timeframes, and to give us a perspective on where the cryptocurrency may be heading next.
The charts are of the January futures contract on the CME.
If we start with the daily, what’s clear from the price action of October and November was the creation of the double top just below the $70,000, and the most revealing volume and price action here occurred in the middle of October. Note the two up candles of 19th October and 20th October with the explosion of volume and clearly anomalous compared with previous benchmark candles and volume. Both are cases where effort and result are in disagreement (Wyckoff’s third law). Clearly, on such an injection of effort, we should have expected to see a significant rise in price, which was not the case for either, resulting in only a modest move which was immediately followed by heavy selling on the 21st of October.
The rally into the early part of November looks weak with volume falling away as the second top develops with the bearish trend then picking up momentum, passing through the VPOC at the $58,000 region and denoted with the yellow dashed line, and on through the low volume area on the VPOC histogram between $56,000 and $50,000.
Note the trend monitor at the bottom of the screen, which has remained steadfastly red throughout, and as each attempt to rise fades, so the next leg lower develops. Also, the confirmation volume on the widespread down candles, with only yesterday’s weak buying suggesting a pause point at the $41,755 level with the wick to the lower body, as we approach the level of late September, which triggered a strong rally. Will we see the same again? Let’s turn to the weekly chart and see what it is signaling.
This timeframe merely reinforces the picture on the daily chart. Note the two shooting star candles of October and November on the second top, particularly the high volume associated with the first of these. In addition, the two most recent weeks of price action, where we have two widespread down candles on rising volume as we move away from the VPOC at $48,000, suggests possible further weakness to come, which could see Bitcoin move deeper still. However, as we can see, there is a deep area with high volume nodes extending all the way to $35,000, and this region may well provide a sufficient cushion to bring the current decline to a pause point and move Bitcoin into congestion.
Volume acts in the same way as price from a support and resistance perspective, and given the depth of this region, it may well offer the support required and, if so, a return to the VPOC in the medium term. However, the outlook remains bearish for the time being, if and until we see strong buying sufficient to reverse the selling pressure in this market, but which has not been apparent to date.