Market Overview: Bitcoin
As August comes to a close, Bitcoin has experienced a challenging month, dropping $15,000 from its all-time highs. This decline suggests a lack of buyer interest at high price levels, signaling a sentiment shift in the market.
Bitcoin
The Monthly chart of Bitcoin
The IBIT monthly chart provides a clear picture of August’s price action, as the monthly candlestick has already closed. August formed a strong bear reversal bar within the context of a three-push bull channel, which resembles a wedge top pattern. This latest bull leg consists of three strong bull bars, a doji with a bull body, and includes several gaps marked as blue boxes on the chart. These gaps indicate areas where bulls were eager to buy, suggesting that any reversal from current levels is likely to be minor.
The presence of these gaps signal that bulls may still present at those price levels and may step in again, potentially leading to a sideways to upward move in the short term if the price revisits these areas. However, there are no guarantees, and proper risk management remains essential for traders.
Following a wedge top, the typical expectation is for one or two legs of sideways to down movement. However, the second push of the wedge maintained a major higher low above the high of the first push, leaving an open gap. This structure increases the probability of another leg up, as the higher low suggests sustained buying interest.
Analyzing the rhythm of the chart reveals a pattern of deteriorating bull momentum. The first bull breakout exhibited strong follow-through, followed by a pullback. The second bull breakout had weaker follow-through, with a significant gap to the previous high that remained open. August represents the follow-through of the third push, which broke previous highs but closed the gap with the prior high, a weaker evolution for bulls.
Could this mark the beginning of a prolonged sideways period, potentially lasting 10 bars? It’s a plausible scenario. The diminishing strength of each successive bull breakout suggests that the market may transition into more horizontal price action. If September produces a strong bull bar forming a high 1 buy signal, particularly without testing significantly lower prices, it could be a reasonable opportunity to buy. This setup would indicate that bulls are regaining control without the price breaching critical support levels.
Conversely, another strong bear bar in September would not necessarily present a compelling sell opportunity. For bears to gain dominance, they would need to push the price below a 50% retracement of the third bull leg in the wedge top, through the gaps, or down to the 252-day moving average. Shorting after a four-bar bull micro channel is challenging, and limit order bears likely avoided selling above the second push high, given the previous open gap and the historical difficulty of betting against Bitcoin’s higher highs.
In summary, while bulls are not out of the game, the most likely scenario is a period of sideways trading. A strong bull bar with a shallow pullback that avoids deep penetration into the prior bull flag would shift my outlook toward bullish continuation. Another bear bar or a test of the 252-day moving average would not be surprising, but a decline to the 2025 lows would be an unexpected outcome.
The Weekly chart of Bitcoin
On the weekly chart, Bitcoin formed a bear breakout within a bull channel, breaking below the lower trend line of the channel and the 90-day moving average, creating gaps that signal bearish strength. Despite this, the price remains within a long-term broad bull channel, currently positioned in the middle of the channel. A key area of interest is the $100,000 level, marked as a gray zone on the chart, where the price has repeatedly pivoted in the past. This psychological and technical level is likely to act as a magnet for price action. If the bear breakout fails to reach this $100,000 area, it would be a positive sign for bulls anticipating a resumption of the broader bull trend.
Given the ongoing decline, my attention turns to the levels below. If the price is to test this lower trend line of the broad bull channel, it would indicate that Bitcoin is in a large trading range, likely requiring a couple of bear legs to reach that level. Bears can consider selling with limit orders at higher prices, such as the breakout point, the 90-day moving average, the high of a prior bar, or the bear micro gap. These levels offer acceptable risk, and a sideways to downward move is a reasonable expectation following the bear breakout.
To clarify the market’s current state, the thesis of a small pullback bull trend has weakened significantly after the gap closure and three consecutive bear bars. Instead of just a pullback of a strong bull channel, we may be within a complex 2 legged moves. The market experienced two strong bull legs, with the first being particularly robust. This strength reduces the likelihood of an immediate test of the lower trend line of the broad bull channel.
The market now faces two potential paths: forming a breakout mode pattern or developing a couple of bearish legs. For a breakout mode pattern to emerge, bears would need to fail in the coming week. When a market transitions from an “always in long” to an “always in short” state, and bulls quickly reverse bearish momentum, it suggests the formation of a tight trading range. In this scenario, small bull breakouts are sold, and small bear breakouts are bought, leading to a breakout mode pattern characterized by at least four or five reversals over 10 to 20 bars.
Alternatively, the market could produce a couple of bearish legs, where bears maintain strength by trending downward or reversing bullish attempts, pausing, and then forming a second leg down. The current market is complex, with significant price action on the left side of the chart, making trading decisions challenging. Limit order traders are likely to fare better than stop order traders, who struggle in the absence of a clear trend. Limit order bears are probably looking to sell for another push down, while buy limit orders are likely positioned around the $100,000 area, anticipating support at this key level.
Conclusion: The Bitcoin market is at a pivotal juncture, with August’s bearish reversal signaling a potential shift from bullish momentum to a more sideways phase. On the monthly chart, the wedge top and gap closures suggest a likely period of sideways trading, though a strong bull bar could alter this outlook. On the weekly chart, the bear breakout points to further downside potential, with the $100,000 area as a critical level to watch.
Market analysis reports archive
You can access all weekend reports on the Market Analysis page.
