Bitcoin (BTC/USD) takes a dive on weakening technicals

Market Commentary

Given the way the technicals were developing yesterday, it comes as no surprise that price moved away from the 4000 $ level to the downside today piercing 3600 $ on aggressive selling that does not yet appear to be over yet according to the charts. While we are not ready to say that this breakdown from the previous 3600 - 4400 $ trading range is a sign that new cycle lows are imminent or inevitable, we do think that at least a test of sub-3500 $ seems likely over the coming days before the bulls are comfortable re-engaging, which is why we remain neutral and on the sidelines until further notice.

3-Day Chart

We want to take a look at the 3-day chart for an expanded view of the medium-term setup where we can see that price once again failed to get above the still bearish upper EMA earlier this week which helped to trigger the current selloff thus sparking the recent breakdown on a bearish candle formation that is turning market structure heavy and is close to voiding the IH&S that everyone has been hoping for since the beginning of the year, none of which bodes well for the bulls moving forward. Also note that the 50 and 100 SMA's remain in steady downtrends and are both below the 200 SMA, and the Ichimoku Cloud is once again starting to expand to the downside out in front of the market, both of which should keep downward pressure on price moving forward, although we are getting very close to the top of the upper demand area which has historically acted as support on weakness so we'll see if buyers continue to engage as price dips below 3600 $.

Moving on to momentum and volume, notice that RSI has already rolled over following an anemic move to the upside over the first week of January, the Stochastic is stalling out in no man's land with room to run lower, MACD looks close to crossing back below its zeroline, and PPO stopped flashing strong buy signals overnight, all pointing to more downside in the near future but with a decent possibility of a hold of the 3122 $ cycle lows (which could help the bulls' case tremendously moving forward). Additionally, while exchange volumes have turned bearish over the past 24 hours they remain subdued compared to what we saw last month, the A/D line has been under pressure but is actually holding up fairly well overall, and the volume profile setup appears most vulnerable around the 5000 $ level, so if the bulls can indeed defend the cycle lows then we think a rally up to that area is likely as we get deeper into winter.

Market Summary

While it would be encouraging from a short-term perspective to see price bounce hard from the current support region back above the 4000 $ level which would likely spark a continuation back up to the 4200 - 4400 $ resistance area, deep down we are hoping that this selloff continues so that we can get a true test of more significant support levels in the low to mid-3000's $ in order to get a better sense of where we are in terms of the bottoming process. Also note that the faster this selloff materializes the better it is for the bulls considering that a slow bleed indicates distribution which is a sign that much lower prices are in store. All things considered we think the bears are now in control meaning that downside pain is likely not over despite the bounce off of 3500 $ this afternoon.

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