Market Overview: Bitcoin
This week, Bitcoin traded slightly below December’s low, triggering the monthly bear signal discussed in the previous report. It is likely that the price will test below December’s low again during January, within the next 0–3 weeks. Both the weekly and daily charts present intriguing patterns worth dissecting.
If you missed our special end-of-2024 edition, we highly encourage you to review it—it offers valuable insights into Bitcoin’s behavior.
Bitcoin
The Weekly chart of Bitcoin
In prior reports, we analyzed an Inside-Outside-Inside (IOI) pattern on Bitcoin’s weekly chart. This IOI formation followed a bull breakout and developed at a significant resistance level, making it a valid setup. Such a setup offers two potential outcomes: continuation of the bull trend or reversal into a bear phase. Both scenarios hold a theoretical 50% chance of success, making this a Positive Trader’s Equation with a 2:1 reward-to-risk ratio. For more on ii, ioi, oo patterns, check Bonus Videos 15 and 16 of the Brooks Trading Course.
Despite the initial downside breakout from the IOI, the bearish activation technically failed when bulls traded above the right inside bar’s high. Last week, we warned that this “failed bear IOI” lacked strength as a bullish setup, as Bitcoin remained below the $100,000 resistance. This week reaffirmed our caution, as the price climbed above last week’s range only to reverse sharply, forming an outside down bar and a Low 2 signal, the second attempt to end the bull trend.
The market is potentially transitioning phases within the market cycle. Historically, after a strong bull trend, a trading range often forms. This range can eventually lead to a new trend—either a continuation of the bull trend (higher highs and higher lows) or a bear trend (lower highs and lower lows).
Indicators of a possible transition into a trading range include:
- The price reaching a measured move based on the 8-month trading range of 2024.
- The psychological barrier of $100,000 acting as a resistance.
- Decreasing volatility and failure to consolidate above $100,000.
Confirmation of a market top remains pending. A decisive bear breakout from the IOI pattern would solidify this hypothesis. Conversely, trading and closing above the current all-time high would invalidate these bearish conjectures, shifting focus to $120,000 as the next target.
We advise caution with shorting Bitcoin. Historically, buying higher highs and exiting at higher lows has been consistently profitable, while the reverse has not. Consider positioning to buy at favorable levels, such as bull breakout of current all-time high, the breakout point at $74,000 or a reversal from the 8-month trading range.
The Daily chart of Bitcoin
On the daily chart, Bitcoin has formed a trading range around the $100,000 resistance level. This range currently exhibits the characteristics of a limit order trading range, where traders profit by buying below lows and selling above highs, rather than following strong breakout bars.
The trading range resembles a Head and Shoulders Top. After weeks of development, the crucial levels have become clear: the high and low of the right shoulder. A breakout below the right shoulder’s low could drive the price to a measured move target near $80,000, aligning with the weekly breakout point of the 2024 trading range. Alternatively, a breakout above the right shoulder’s high targets a move to $115,000, supported by a measured move projection from the monthly chart.
Given Bitcoin’s failure to sustain prices above $100,000, downside continuation appears more probable. However, a strong breakout above the right shoulder would invalidate this outlook and signal renewed bullish strength.
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Thanks Josep, was able to make money by adding shorts to bitcoin. More inclined for retesting 80000 area at the moment