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Bitcoin Analysis: 10-12% pullback likely, Volumes contradict Goldman’s view

Bitcoin [BTC] lost weight on Wednesday as prices fell from $3444. 71 to $3227. The upward sloping -DMA came to the rescue and ensured the virtual currency trimmed some losses to end the day around $3290 levels.  The currency seems to have regained the bid tone to trade around $3350 levels this Thursday morning in Europe. 

As per coinmarketcap.com, Bitcoin has dropped 07% in the last 24 hours. Ether and Ripple have dropped 3.45% and 5.10%, respectively. The newly created Bitcoin Cash [BCC] has tanked 10.57%. The market cap of the crypto currencies stands $121.68 billion and the BTC dominance rate is 45.6%. 

‘Real dollars are at work here’, says Goldman Sachs

“Whether or not you believe in the merit of investing in crypto currencies (you know who you are), the real dollars are at work here and warrant watching", says Goldman Sachs in a Q&A note published on crypto currencies.     

Essentially, the investment bank is asking investors/clients to believe in the rally, although volume chart tells us something else. 

Daily chart - Prices drop, Volumes surge

We have repeatedly taken note of the bearish price-volume divergence over the last few days. Now, I am even more convinced that the virtual currency could witness a major pull back, given the volumes surged/breached the downtrend line on the negative price action day. 

So what we have is a combination of low volume on positive days and high volume on a negative day. 

It indicates that, “the real dollars may not be at work” contrary to Goldman’s claim. Unless we don’t see strong volumes on the positive price action day, the scepticism will prevail. 

Resistance

  • $3444.71 [previous day’s high]
  • $3504 [100% Fib extension of the July low - July 21 high - July 26 low]
  • $3806.95 [100% Fib extension of the March low - June high - July low]

Support

  • $3272 [5-DMA]
  • $3234.18 [1-hour 100-MA]
  • $3113 [10-DMA]

View

  • The pull back from the high of 3483 to $3227 [yesterday’s low], coupled with a spike in the volume on the negative price action day as discussed above indicates the bull market has run out of steam. 
  • The upticks are likely to be met with fresh offers and a more pronounced pull back to $3100-$3000 looks likely in the short-term. 
  • On the higher side, only an end of the day close above $3504 would revive the bull market trend, although we would want to see a spike in the volumes as well. 

Author

Omkar Godbole

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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