Bitcoin Reversal Gathering Steam...

Sunday 01 June 2014

G'day!  Well it's been another great week for bitcoin bulls, with the market putting on another 10%. When we last posted an update, the market was testing key resistance at $590 (BitStamp) at Point One (below) and we were warning to be prepared for a retracement to the $540 area.  

Here's how it played out...

BitScan BTC Market Analysis 1 Jun - 1

As you can see from the chart, after a second rejection at $590 (Point 2) the sellers hit the market in force, the order flow reverses and within 4 hours we are back down at old resistance, now being tested as support.  Interestingly, though, we don't make it all the way down to $540, before sufficient buyers emerge to halt the reversal (Point 3).  Its almost like market participants weren't prepared to wait for a retest of the wholesale price point for fear of missing out - and while it can only be ascertained in hindsight, its a very bullish indicator.

By this point the lows of the rally have provided us with sufficient information to generate a rising support line and we can see how important this becomes just down the way, when after 2 attempts to pierce and hold below it, the market is propelled back up to resistance at $590 and this time it has no chance; there simply aren't enough sellers left to resist the market's advance.  

As we have said many times, when a key price point gets pierced, the market's natural inclination is to retest it in the other direction.  As you can see at point 4, this happens very quickly, the reaction is emphatic and we've been rising inexorably ever since, testing next resistance at $640  as I write (Point 5).

So what does this mean moving forward?

BitScan BTC Market analysis 1 Jun 2

Looking back at the 'Daily' chart, a few things stand-out:

1. We're at $640 resistance.

2. Between $640 and the next resistance zone @ $710 stands the upper trend channel line (purple diagonal).

Either of these two technical features could reverse order flow and if we fall back through the steeper of the rising support lines (green diagonal) we'll be back at $540 in no time.

Having said this, the current up-trend still looks both strong and steady, with no sign yet of the sort of exuberence one tends to see before a major reversal.  So, while it might take a few attempts to get through $640, and we may well see $540 - or lower still - in the process, this shouldn't worry bulls unduly. 

Having bought back in at $450, investors can afford to sit on their hands  and enjoy the ride. And for more active traders looking to gain or increase their long exposure, Pull-backs to $590, $540 - and particularly - the base of the rising channel are valid wholesale entry points within the context of this increasingly potent rally.

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