Bitcoin Market: Up or Down – It’s All Up to You

The price of Bitcoin has returned to its floor support level for the third time in 2015. Now is the time to make a decision. The choice seems obvious, and it depends on what you know about Bitcoin and how much you think it has value beyond our time.

Bitcoin Price Analysis

Bitstamp 1-day chart (21:07, August 23, Beijing time)
 

It looks like our prediction for this round of consolidation has ended near the floor support line of $220 and RMB 1,400.

The price has already made 5 waves up from yesterday's low, and there are several indicators on the current chart suggesting that the price may start to rise from the current level, with an additional note to be discussed later.

All of the momentum indicators are beginning to diverge from previous lows. The RSI (second from the top) and slow stochastics (dark line, top) are diverging from lows set in January 2015. Yesterday's low only made a higher low, so this divergence should exert an upward force on prices.

The price has retested the support line near $220 and 1,400 yuan at the end of a falling diagonal, and then followed up with 5 clear upward sub-waves. Therefore, we can believe that the decline has ended and the price should now start to rise.

An uncomfortable truth is being revealed by the moving averages. The 20-period moving average (green) is desperately trying to get closer to the red 200-period moving average on the daily chart, and a crossover between the two is often seen as a bearish signal. A crossover could happen in a day or two. This chart is clearly inconsistent with our expectation that a larger-scale pullback is about to begin. Or, will it?

The bearish signal (20-period MA/200-period MA crossover) could be weakened if prices start to move sharply higher in the next few days, which would pull the 20-period MA out of its downtrend. However, crossovers are a fact of life on the charts. The scenario is that prices could surge to a higher level in wave A, then fall lower in wave B, cross over, make a higher low, and finally, wave C makes a higher high, with the 20-period MA climbing above the 200-period MA after the crossover. The result would be an ABC structure - the initial wave of a large rising diagonal.

The worst case scenario is that the 20-period moving average and the 200-period moving average pull the price below $200, and the Bitcoin market continues to fall amid the negative market sentiment and short selling. However, this result does not seem to be what the big players in this speculative market want to see.

I find you have to go back and look at old things and see them in a new light. - John Coltrane

Summarize

There are 2 clear price paths on the chart. The potential for additional downside exists, but equally, a solid multi-month consolidation range between $220 and $300 means the stage is set for a big rally to long forgotten territory: $400 and $550. Despite the recent market sentiment and price reaching floor support, we prefer to go higher for now.

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