Bitcoin Recovers Strongly Above $4000 – Next Rally or Solid Bottom Needed First?

So the idea behind the most recent call for the next rally looks somewhat like our first chart (fig. 1). It correctly sees the fact that Bitcoin shows relative strong upwards movement for the first time since breaking the major resistance level of $6000. It also takes in account that the RSI (Relative Strength Index) is likely moving towards the overbought zone in the 4h chart. While the daily chart reveals that Bitcoin is still in the oversold zone. Therefore, this analysis assumes that Bitcoin will deflect short-term from the $4400 – $4500 level. After that, according to this view, the momentum will likely continue for now and could even move Bitcoin back to the temporary bottom that Bitcoin held before breaking down ($5600). Traders that follow this analysis deem that this recent outbreak of Bitcoin of the downtrend channel (fig. 1) is significant.

(fig. 1)

It is entirely possible that Bitcoin will perform a little rally from here. But all the way to above $5000 seems a bit exaggerated from my point of view. The analysis seems to be too focused on short-term signals and disregards the bigger picture. The recent upwards movement is noticeable but it still needs to prove that it is striking. Given the fact, that Bitcoin has broken a support level that it held for roughly 6 months before the recent upwards movement does not seem too significant. Bitcoin has ignored both psychological support and the RSI for more than two weeks. Therefore, it remains questionable whether this upwards movement is really substantial. Furthermore, it seems compelling that Bitcoin moves in a corrective 5-impulse wave, according to the Elliott Wave Theory.

(fig. 2)

Wave 3 is the longest wave in a 5 impulse wave. It is typical that it can ignore support levels and RSI signals. Especially when it breaks major support levels. Therefore, it seems compelling that Bitcoin will not follow the first rally all the way to previous resistance levels. On the contrary, we will make the case for the probability that Bitcoin will correct even further until a solid bottom has been found.

(fig 3.)

In our last analysis, we argued that a level that could come into question for a bottom could be the level of $3200. Solely for the fact that Bitcoin had respected this level as a bottom before the last rally as you can see in (fig. 3). Now we have further indicators that this could indeed become a solid bottom for Bitcoin. The 200 MA (Moving Average) on the weekly chart is a major support level. It is in the stock markets as well as in the Bitcoin chart. And it happens to be just at that level at the moment. Therefore, we have 2 rather strong indicators that this level will be respected. It seems from this POV in any case stronger than the case for the psychological support level at around $4000 USD. As Bitcoin did not respect psychological supports in the past weeks at all.

We are dealing of course only with probabilities here. However, from the point of view of this analysis, it seems to be too short-term focused that Bitcoin will make any major upwards movement from this level. This impulse is, however an indicator, that the momentum could be shifting soon. Which makes sense as our proposed bottom would not be too far away. The trust in a renewed rally, a trend change needs a solid bottom. The mere fact that $4000 is a psychological support does not seem to be enough to serve as such a bottom.

So we see it as likely that the bottom will be at $3200. Any price close to that level is a buy zone from the perspective of this analysis. I personally adhere to the Elliott Wave Theory which is why I would suggest that a major wave 4 (fig. 2) really will follow. However, we would still not be in the safe zone then as a wave 5 (fig. 2) would follow that would drive the price even lower than the longer wave 3. But targets for both of these waves would be the content of a future analysis.




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