Having become extremely overbought, and coming into the release of the latest US CPI data, Bitcoin suffered a huge $7,400 correction in a matter of just two days. Is this something for investors to be concerned about, or was this just a blip in Bitcoin’s rise into the final leg of the bull market?
Bitcoin was just too overbought
US CPI data came in slightly hotter than expected, causing a 0.4% fall in the S&P 500 Index, but the tech-heavy Nasdaq ended the day higher. Now these inflation figures are known and priced in, some stability can potentially return to markets, that is of course, if Wednesday’s PPI figures do not cause more concerns.
As far as Bitcoin was concerned, the latest sharp correction was far more likely to be caused by too much elation and overbuying than the odd 0.1% on top of the expected US monthly inflation print.
On just about every short-term indicator the $BTC price was very overbought and a market-calming correction was exactly what was needed. While the sharpness of the correction perhaps caught many investors by surprise, it certainly helped to reset the market.
$BTC price starts to build again
Source: TradingView
The 4-hour chart reveals how the $BTC price breakout and surge up to the all-time high was just as quickly negated with an even bigger price move to the downside. That said, now that the dip is potentially over with, the bulls have the opportunity to start bringing the price back to the top.
The Fibonacci extensions are showing that the price is consolidating above the first 0.236 level. It might be expected that more price growth could take place from here.
A tale of wicks
Source: TradingView
The daily chart shows the long candle wick to the upside left behind after the two-day dip. That said, a long wick was left in the opposite direction following the rapid recovery. The bulls will be hoping that the last one cancels out the first one.
At the bottom of the chart, the RSI is showing that the indicator has moved back down, although it is angled slightly up as of Wednesday morning. The dashed blue line shows that the indicator is still in a downtrend. This will need to be broken to the upside for price to continue to move higher.
Source: TradingView
The weekly gives a more damning view of the candle wick to the upside. Looking across at similar-sized candle wicks to the upside during previous price history, it should be noted that they did generally show up at the tops of downtrends. Nevertheless, the $BTC price is only 3 days into this week, and with potentially more upside to come, this wick is probably going to reduce in size.
The RSI at the bottom of the chart is in a similar condition to the daily. A downtrend has been in force for quite some time, and this will need to be broken if price is to continue going higher.
Correction made – time to move on?
Yes, Bitcoin did descend precipitously, and more than $7,000 was wiped off of the price in a very short space of time. However, in the grand scheme of things this is very likely to be just a blip. In addition, these corrections are healthy and they allow the build up of air to be released out of the bottle before the market gets too frothy and we end up with a perilous cascade of selling.
Bitcoin has had its correction, and now it’s time to move on and continue into the rest of this bull market, US PPI data allowing of course.
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.
