Bitcoin (BTC) sank all the way down to touch horizontal support at $112,000 over the weekend. This was perhaps due to the negative market reaction to US tariff increases together with a very gloomy jobs data release and previous downward revisions. Is the worst now priced in? Can Bitcoin continue to rally from here?
US stock market fall – perfectly normal correction?
Source: TradingView
It wasn’t just Bitcoin that sank due to the recent negative news out of the US. The S&P 500, index of the leading 500 companies in the United States, fell sharply on Friday, recording a 1.6% decrease for the day.
The weekly chart above illustrates how the index may fall back out of the ascending channel. The weekly Stochastic RSI indicators at the bottom of the chart are currently mirroring the downturn. This may just be a perfectly normal correction, or the start of something much bigger. At least the bulls have the rest of this week in which to turn things around.
Of course, if the US stock market is down, Bitcoin is going to face stronger headwinds. To this end, weekend trading did not reflect the lighter to and fro of retail investors without the huge impact of institutions that don’t trade at this time. Instead, Bitcoin was sold off heavily, with Binance and Coinbase perhaps using the downturn to completely flush out the long traders.
$BTC price reenters bull flag
Source: TradingView
The 4-hour chart for $BTC shows how the heavy sell off took the price all the way down to $112,000, a bear target given in Friday’s article by this author. The bounce took place from there after this support level was confirmed when the price returned for a retest on Sunday.
Currently, the price is back inside the bull flag. This may not be for long, given that the 4-hour Stochastic RSI indicators have topped out. It might be expected that the price consolidates around this area or even descends again. However, as long as the price doesn’t go below that last local low at $112,000 a nice W pattern might form which could give the price the boost needed to head back to the top of the bull flag.
If on the other hand the price does sink through the $112,000 support, a much stronger horizontal support is at $109,000. The 0.618 Fibonacci is just below this at $108,000, just in case a candle wick comes down to flush out the stops. If these levels were reached, it might be expected that this correction would have arguably reached its pivot point.
Important price structure tested
Source: TradingView
The daily time frame reveals how the price has come down perfectly to test the support provided by the top of the previous bull flag. While traders and investors have been panicking over seeing the $BTC price coming down to this level, when looked at objectively, it can be seen that important price structure has been tested and that there is the possibility that this can hold during any more downside price action, which would only make it stronger, and potentially result in it serving as a platform for the rest of this bull run.
Mixed signals on weekly time frame
Source: TradingView
Moving into the weekly time frame, the current bounce from $112,000 looks encouraging so far. That said, the previous bearish enveloping candle will need to be countered this week by some bullish price action going in the opposite direction.
The indicators below hold some mixed signals. From top to bottom, the Stochastic RSI indicators are sinking below the 80.00 level. It remains to be seen whether the mid-line at 50.00 can hold as support.
The next indicator down, the Relative Strength Index, illustrates that the indicator line has crossed below the yellow moving average line. Bulls will need to make sure the indicator line gets back above.
Finally, the MACD at the bottom of the chart shows that the indicator line is still holding above the signal line. Nevertheless, the histogram bars will need to turn back to dark green and start getting bigger again.
All the above is entirely possible. However, the market might require one more flush-out to get retail investors selling again. This might be in the form of a further correction to $109,000 as discussed above. Be that as it may, this potential descent would likely be arrested by the very strong price structure at this support level.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
