Market Overview: Bitcoin
Last week, we projected that the coming days or weeks would see Bitcoin testing December’s low. December, marked by a sell signal bar on the monthly chart, suggested a likely revisit to levels below December’s low, which happened during the week.
End-of-2024 edition report.
Bitcoin
The Weekly chart of Bitcoin
In our earlier reports, we analyzed Bitcoin’s weekly chart activity, focusing on the $100,000 resistance level. This area showcased a developing inside-outside-inside (IOI) pattern following a robust bull breakout. The IOI pattern triggered to the downside but failed.
Last week’s price action added complexity. Initially, the price climbed above the previous week’s range, only to reverse sharply and form an outside-down bar coupled with a Low 2 signal. This week, however, saw the activation of the Low 2 signal followed by a strong bullish reversal. The price surged above the Low 2 signal’s high, creating an outside-outside (OO) pattern. As with IOI or II patterns, the OO pattern has a theoretical 50% success rate, presenting traders with a positive Trader’s Equation due to its 2:1 reward-to-risk ratio.
Volatility remains high, a favorable condition for Bitcoin. Historically, periods of reduced volatility after a bull trend often precede significant pullbacks. While we previously considered the sideways action around $100,000 as a potential market top, confirmation required a decisive bearish breakout of the IOI pattern or a series of lower highs and lower lows on the daily chart—neither of which materialized.
Transitions from a bull trend to a trading range frequently occur near resistance levels. In this case, the 8-month trading range measured move and the previous inability to consolidate above $100,000 hint at this possibility. Despite these factors, caution was advised against shorting Bitcoin. Buying higher highs and selling at higher lows has historically proven more profitable than the reverse. Strategic entries at key levels, such as the breakout above the OO, the all-time high or pullbacks near $80000-$74,000, align with this approach.
Looking ahead, Bitcoin’s trade above $100,000 suggests potential continuation toward $120,000. However, the bearish argument of selling weekly closes above $100,000 remains valid. Traders face uncertainty, as both bullish and bearish cases hold merit. Strategies such as long straddles, which benefit from strong directional moves, may be effective. However, time decay is a consideration for options traders, necessitating swift market movement.
The Daily chart of Bitcoin
The daily chart reveals a trading range around the $100,000 resistance level. This range behaves as a limit order market, where traders profit by buying below lows and selling above highs, rather than following strong breakouts. The range also resembled a Head and Shoulders Top, with critical levels established at the high and low of the right shoulder.
This week, the price breached the right shoulder’s low, giving bears hope for a measured move toward $80,000, aligning with the weekly breakout point of the 2024 8-month trading range. However, a strong bull reversal ensued, breaking above the right shoulder’s high and triggering a buy signal. The Bulls now target $115,000, calculated as a measured move from the right shoulder’s height.
The trading range has also produced two legs, suggesting it is near the top of an expanding triangle trend line. The breakout above the right shoulder’s high lacks a strong bull bar or follow-through, keeping the breakout’s strength uncertain.
Systematic traders are likely to buy above previous highs, as this strategy has historically been profitable over time. Discretionary traders, however, may prefer to wait approaching the all-time high to avoid a sharp reversal from the right shoulder’s high. Conversely, bears might see current levels as an opportunity to sell, placing stops near the all-time high. While this presents a low-probability trade, it offers a favorable risk-reward ratio for a move down towards $90,000.
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