Last week we said:
It has been a terrible market for the past few months, but the bottom is close. While RSI indicators may signal room for one final plunge, there is significant support at the 29-31k area. Below this, potential bottoms could be $24k or at the weekly 200 SMA (currently at ~$20k). If BTC falls below $30k, I expect a quick dump to $24k and a possible wick to touch the $20k level before a massive rebound. Otherwise, if BTC holds support, a retest of $39k could be in play.
Bitcoin’s fundamentals remain strong. The network continues to grow, supply becomes less liquid, and miners are holding their earnings. With sentiment near all time lows, it wouldn’t be a bad idea to start averaging into a new position. Remember, it’s not about catching the exact bottom (this is very hard to do) – but rather, buy when markets are down and fearful, and sell when they are greedy and inflated.
BTC indeed held support, and our prediction that it would test $39k resistance if so proved to be true. As is the case in bear markets, resistance levels often fail upon the first try. BTC touched on $39k withdrew back to $35k, and then retested $39k again – only to lose momentum and retrace. It appears BTC is forming a consolidation pattern in this trading zone.
Let’s take a look at the charts and see if we can identify this week’s trend, along with support and resistance zones.
Bitcoin Price Analysis
We finally have some bullish divergence on the 4H chart! As you can see in the chart below, the moving averages are still in a bearish configuration (50 SMA < 100 SMA < 200 SMA), however, BTC’s price has broken above the 50 SMA which has now acted as support.
Though it is still early, these could be potential beginnings of a trend reversal.
The RSI on this timeframe is neutral, but the stochastic is “oversold” meaning that the RSI is likely to continue its bounce upward. This signals upward momentum is likely to continue and 4H 50 SMA support is likely to hold (at least until proven otherwise). This establishes a new local support zone for BTC.
The Daily moving averages look bearish, and it’s obvious that a death cross is incoming. But keep in mind that death crosses are lagging indicators – meaning that they are a signal for past price action. Once the death cross happens, it could be a potential bottom signal for BTC, saying that the worst is already over.
The daily RSI and Stochastic look tired. The RSI is just above the oversold zone, but the Stochastic makes it look like BTC will run out of momentum soon. This could indicate one final dump, or a possible extended consolidation period.
Finally on our weekly chart, BTC looks ready for a bounce. RSI is trending toward oversold and the Stochastic has been at rock bottom (and is ready for a move upward). Once we have a green candle on the weekly, I expect a strong upward bounce.
Bitcoin Investor Sentiment
BTC sentiment has returned to “Extreme Fear” after a 3% retrace in price yesterday. Sentiment clearly bottomed last week at 13, and has been slowly grinding upward as BTC’s price has recovered ~10% from last week’s lows.
Bitcoin Fundamental Analysis
Funding rates on exchanges that allow leveraged trading reveal the market bias. For most of January, funding rates were negative – indicating a bearish bias in the market.
Glassnode has also reported that Put options are dominating the BTC derivatives market. This bearish bias in derivatives coincides with an elevated amount of leverage and open interest, setting the table for a short squeeze that could launch BTC’s price upward in the coming weeks.
Conclusion
The price charts are showing mixed messages. We have bullish divergence on the 4H, losing momentum on the daily, and conditions for a strong bounce on the weekly. Investor sentiment is rising but remains extremely fearful, and fundamentals show that bearish bias is already priced into the market. All of this looks to be a slowly changing tide for BTC from bearish to bullish.
New support has been established at the 4H 50SMA around $36k, which has been held upon last night’s retest. A consolidation pattern appears to be forming between support and resistance at $39-40k. I expect a retest of resistance soon.
Support Zones:
- $36k (4h SMA)
- $33k (local)
- $29-31k (demand)
Resistance Zones
- $39k (local/psychological)
- $45k (4h 100SMA)
Not investment advice. Do your own research.
