Bitcoin Sliding Sharply after Breaking Below a Triangle

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Bitcoin Sliding Sharply after Breaking Below a Triangle

Backdrop: In 2013, Bitcoin rallied sharply from an average 100.00, to around 1150 right before the year’s end. This year, bitcoin has been giving back those gains, reaching a low of about 338 in April. Then after an ABC swing up to about 680, it consolidated in a descending triangle, with support around 555.

Bitcoin Daily Chart 8/14
bitcoin daily chart 8/14

(click to enlarge)

Triangle Breakout: This week, Bitcoin (BTCUSD) broke below this triangle support with strong volume, and accelerated during the 8/14 session. Note that price also broke below the cluster of 200-, 100-, and 50-day Simple Moving Averages (SMAs), which is also a bearish signal. The RSI is digging below and even tagging 20, which shows very bearish momentum, though in the near-term, it might suggest an oversold market. With price testing the 500 handle, we might get some intra-session consolidation.

There is still downside risk to the 420-440 area, the lower range of price action during late April through mid-May. Below 420, Bitcoin would be looking at the 2014-low around 338.

Let’s take a look at the 4H chart.

Bitcoin 4H Chart 8/14
bitcoin 4h chart 8/14

(click to enlarge)

Strong Bearish Momentum: The 4H chart shows a market that has been already bearish, though it was drifting lower instead of plunging lower like in this past couple of sessions. The RSI has tagged below 30, and has been holding 60 for the most part, which shows consistency of bearish momentum. Today, we see the RSI dip below 20, which is very bearish, and somewhat oversold in the near-term, especially with the daily RSI also below 30 and approaching 20.

If we do get a pullback, the previous support area in 555-560 could be key resistance. Above that, the bearish outlook might need to be shelved. However, a bullish outlook should not be considered until a break above 608, which would clear the August high, and 200-period SMA in the 4H chart. For now, the outlook is bearish, with downside risk toward 420-440, though we might see some consolidation first in the very short-term.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.