Bitcoin Update: Reversal Right on Track
On our February 13, 2019 update, we argued that Bitcoin’s (BTC/USD) bottom is likely in. While many crypto participants were heavily bearish about Bitcoin’s prospects, the market broke out of a continuation pattern and climbed over the $4,000 mark yesterday on Bitfinex. This left some in disbelief, which is exactly the reaction that we were expecting.
Nevertheless, many still hold on to their bearish stance. After all, it could also be argued that last week’s rally was nothing but a dead-cat bounce. They will probably laugh out loud if we say that Bitcoin’s reversal is underway. They can laugh all they want but recent events tell us that the reversal is right on track.
Multiple Resistances Breached
The price action on February 18 caught many market participants by surprise. That’s because it’s been a long time since Bitcoin followed through with a strong rally after a bullish move. Since February 2018, every bull rally was met by a stronger bear selloff. This resulted to four lower highs and eventually, the breakdown from $6,000.
Bitcoin lower highs from Feb 2018
With this trend, it seems logical that Bitcoin would once again post another lower high and continue its downward spiral. However, for the first time in a long while, Bitcoin defied bearish expectations. It rallied to $4,021 on Bitfinex on February 18 and breached multiple resistances in the process.
One major resistance that was taken out used to be the diagonal support that kept the market above $6,000. When Bitcoin breached this diagonal support, it acted as a heavy resistance. The February 18 rally enabled bulls to reclaim this support.
Diagonal support turned resistance and then turned support
On top of the diagonal resistance, Bitcoin also managed to go above our range midpoint as well as the 100-day moving average.
Bitcoin trading above range midpoint
It’s not just the price that enjoys multiple bullish breakouts. The daily RSI managed to print two breakouts in the last couple of months. The first one involves the breach of the diagonal resistance on December 18, 2018. At that time, Bitcoin flipped this resistance into support and relied on it to take out RSI resistance of 56. The move above 56 triggered the inverse head and shoulders breakout on the daily RSI. This tells us that momentum has swung to the side of the bulls.
Without these layers of resistances in terms of price and technical indicators, the bulls’ chances of winning the fight to reverse the market’s trend has significantly increased.
Toughest Resistance Ahead
While these technical developments can be really exciting, it is important to not give in to our emotions. Bitcoin’s biggest challenge is on the horizon.
Bitcoin is approaching our range high of $4,300. This resistance is unique because bears enjoy three layers of protection. The first one is the horizontal resistance, the second is the long-term diagonal resistance, and the last is the 200-day moving average.
Bulls need to generate tremendous momentum and volume to go above $4,300. A move above this level solidifies Bitcoin’s road to reversal.
Even after the February 18 rally, many still hold firm to their bearish stance. However, a closer analysis of Bitcoin reveals that last week’s rally enabled bulls to take out multiple resistances. The breach of these resistances increases the chance of bulls to finally reverse the trend.
Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.