Beware of Bitcoin Bounce

Alan Penny

28 November 2019

3 min read

Bitcoin over a keyboard

  • Bitcoin bounces in thin trading
  • Major moving averages above
  • Oversold bounce likely

Bitcoin has bounced slightly over the last 36 hours after having reached very low levels. That being said, you should be very cautious of this bounce as the market has been breaking down significantly, reaching down towards the $7000 level. However, the market should have plenty of interest in that large, round, psychologically significant figure. It should also be noted that the Bitcoin market was trading in relatively thin volume, so only so much can be read into the move.

Short-term bounce

Bitcoin chart

The market has seen a bounce, but this will be short-term at best. The 200 day EMA sits just above and will continue to offer quite a bit of resistance from everything that we have seen recently. If we rally towards that area, longer-term traders will more than likely come into play. Beyond that, the 50 day EMA is starting to turn lower, and perhaps getting ready to cross below that level.

At the first signs of exhaustion, it’s likely that the sellers will come in and take over again

At this point, it could kick off a “death cross” which is a negative sign for longer-term traders. You can only read so much into the bounce, as markets can’t go in one direction forever. At the first signs of exhaustion, it’s likely that the sellers will come in and take over again.

Longer-term outlook

The longer-term outlook for Bitcoin is that we need to continue to go much lower. This is based upon moving averages, recent price action, the fact that we have made a “lower low”, and the ascending triangle above. The ascending triangle that was broken and then retested should send this market in theory down to the $4800 level. That’s an area that will attract a lot of attention, as it was previous support.

This doesn’t mean that the market is going to get there overnight, but clearly the sellers are in control of Bitcoin, as it can’t lift itself in the face of central bank easing. It’s difficult to imagine that things are going to suddenly get better.

Most of the rush into the Bitcoin was due to money flowing out of China, and now there are concerns that the Chinese Communist Party will step in and try to stem the flow of capital outflow, especially in the Bitcoin realm.

A recent statement stating that “China was going to research blockchain technology” suggests that they are going to take even more stringent steps to curb Bitcoin adoption, replacing it with something of their own.

At this point, fading rallies continue to work until there is some type of impulsive weekly candlestick with follow-through. Recently during that announcement we had seen a very bullish couple of days. But it should be noted that it was on the weekend, therefore there was no real institutional follow-through. You can in fact see that the market moved sideways, hit the downtrend line and then broke down from there. Bitcoin still looks very soft.

Written By
Alan Penny

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