Bitcoin breached the $50,000 stronghold this past weekend, for the first time since May 11. It was a dramatic turnaround for the cryptocurrency which, as recently as the end of July, was hovering below $30K.
Though no clear fundamental drivers are apparent, some are citing PayPal's (NASDAQ:PYPL) announcement that it will accept the digital token as a method of payment in the UK.
Whatever the catalyst, the digital currency is rising for its sixth straight week, its longest weekly winning streak since its eight consecutive weeks of gains which ended during May 2020.
Though Bitcoin may be getting set to retreat on profit-taking in the short-term, technicals are leading us to expect it is also setting up to make new highs longer-term.
BTC/USD is trading within a rising channel since the June 20 bottom. The price just completed its second continuation pattern within the channel. Notice how the bottom of the second pattern extends to the one previous, revving up momentum for a continued rally.
However, much like when an Olympic jumper takes a few steps back in order to gain momentum and pick up speed, so might Bitcoin.
After the first burst of energy related to the breakout, profit-taking—which increases supply—could push the price back toward the bullish pennant. That's presumably where investors who may have missed the train headed toward $50,000 the first time around will be waiting, in order to eagerly jump on board, pushing prices right back up to where they are now, and beyond.
The pennant developed right on top of the 200 DMA, demonstrating that level is a pressure point on the technical chart. The fact that prices rose signifies that they are improving over the average price from the last 200 trading days. The length of time reveals the significance of this move, showing its bullishness.
The 50 DMA crossed over the 100 DMA, which, again, ran right through the center of the previous, falling flag, showcasing that price as an important level. The price managed to overtake the average price of the past 50 days, and cross above the 100 DMA to boot, indicating that even the smoothed-out price by an average of the last 50 days is better than that of the last 100 days—yet another indication of price strength.
The rising channel, by definition, shows the trajectory is up. However, even when the price advances it must make corrections within the uptrend, to allow for profit-taking. The price is trading at the height of the session but may have found resistance by the April low.
The ROC shows that momentum was rising in positive divergence since the May low, and that the indicator is testing the bottom of its rising channel, making a rebound more likely than a continued drop. But as long as the falling ROC channel (red) remains intact that's a distinct possibility, especially considering it provides a negative divergence to the price’s rising channel during the same time.
The RSI is retesting the top of a symmetrical triangle. While an upside breakout would suggest a continued climb, it's overbought and could retest its bottom along with a return-move in the price.
Trading Strategies
Conservative traders should wait on a long position for a pullback during which bulls demonstrate control where the 200 DMA meets with the preceding pattern and the rising channel-bottom.
Moderate traders would also wait for a buying dip, if not for confirmation of further support.
Aggressive traders would enter a contrarian short position, selling an expected corrective decline as the price potentially meets resistance by the psychologically round $50K figure and the April low. A coherent, tight trading plan is essential. Here’s an example:
Trade Sample – Aggressive Contrarian Short Position
- Entry: $50,400
- Stop-Loss: $50,500
- Risk: $100
- Target: $50,000
- Reward: $400
- Risk:Reward Ratio: 1:4