Don't Run Home To Mommy Just Yet — BITCOIN! (BTC)
Updated
Hi friends! Welcome to this update analysis on Bitcoin! Let's get right to it! Looking at the four hour chart, you can see that BTC attempted to breakout of the inverse head and shoulders pattern. If you follow me on Twitter, you know I put out a warning about the low volume on the breakout. Sure enough, the pattern reversed, and now BTC has lost the 50 EMA, and we're appear to be heading down to test the 200 EMA (in purple) as it converges with the downward sloping black trendline. So, everyone wants to know "Magic does this invalidate the inverse head and shoulders pattern? Magic, are we all doomed? Magic, is the sky going to collapse and crush us all for loving Bitcoin?" The answer is no. Although the initial breakout failed and as caused a reversal, it isn't abnormal to see a kickback on the right shoulder. The inverse head and shoulders pattern is still valid, and it will technically continue to be valid, unless the head is surpassed on the downside.
To illustrate this, I have extended the neckline out to the left, to catch the volatile trough that was formed on 1/17. You can see that, initially, BTC fell to a low that was deeper than the current left shoulder, and when it returned to the neckline resistance, it actually traded above that area and then reversed. Sure, the neckline was still being formed, but you can see that the price action relative to the overall pattern, produced a failure above the neckline, and a trough that was deeper than the left shoulder. Therefore, we may see some similar action here, in where another trough is formed, possibly even deeper than the trough formed by the right shoulder. Furthermore, we can see a history in the BTC chart, where head and shoulders patterns produce continuation formations before the real breakout. If you look at the all time high, I called the head and shoulders formation up there, and everyone was saying "that's not a head and shoulders formation, those don't work in crypto, it's been dragged on for too long' blah blah blah. You can see that a series of head and shoulders formations were formed from the all time high, and the original formation was never invalidated. Therefore, it's downside target always remained valid, and I never took it off of my chart. When BTC was above 13000, I was calling for a fall to the 5700 area. You can see that that call was miraculously accurate, when everyone was still calling for the moon. Part of the reason I knew that BTC would go there, was because of the series of formations that it was producing, and my understanding of the technical mechanics. The same rules apply here. We may get a pullback, but there is currently no reason to believe that the inverse pattern is invalidated.
That's why I always say, "WAIT FOR CONFIRMATION." When you see a breakout, wait for the surge in volume, wait for the close above the resistance level, wait for a retest of old resistance, to confirm it as new support. Those things didn't fully materialize in this recent breakout. One candle closed above the neckline, but there was no follow-through. It immediately reversed. Right now, it's anybody's guess as to how low BTC will retrace. I do have a suspicion that it could retest my green trendline, but that's still a lot lower from here, and there are a couple key support levels in the way.
I want you to look at the head and shoulders pattern formed at the all time high again. You can see that after it was formed, BTC created a smaller mixed series of head and shoulders patterns before breaking down. We could see something similar here, where BTC forms a series of inverse head and shoulders patterns, over the next month or so, before the upside breakout actually occurs.
To illustrate this, I have extended the neckline out to the left, to catch the volatile trough that was formed on 1/17. You can see that, initially, BTC fell to a low that was deeper than the current left shoulder, and when it returned to the neckline resistance, it actually traded above that area and then reversed. Sure, the neckline was still being formed, but you can see that the price action relative to the overall pattern, produced a failure above the neckline, and a trough that was deeper than the left shoulder. Therefore, we may see some similar action here, in where another trough is formed, possibly even deeper than the trough formed by the right shoulder. Furthermore, we can see a history in the BTC chart, where head and shoulders patterns produce continuation formations before the real breakout. If you look at the all time high, I called the head and shoulders formation up there, and everyone was saying "that's not a head and shoulders formation, those don't work in crypto, it's been dragged on for too long' blah blah blah. You can see that a series of head and shoulders formations were formed from the all time high, and the original formation was never invalidated. Therefore, it's downside target always remained valid, and I never took it off of my chart. When BTC was above 13000, I was calling for a fall to the 5700 area. You can see that that call was miraculously accurate, when everyone was still calling for the moon. Part of the reason I knew that BTC would go there, was because of the series of formations that it was producing, and my understanding of the technical mechanics. The same rules apply here. We may get a pullback, but there is currently no reason to believe that the inverse pattern is invalidated.
That's why I always say, "WAIT FOR CONFIRMATION." When you see a breakout, wait for the surge in volume, wait for the close above the resistance level, wait for a retest of old resistance, to confirm it as new support. Those things didn't fully materialize in this recent breakout. One candle closed above the neckline, but there was no follow-through. It immediately reversed. Right now, it's anybody's guess as to how low BTC will retrace. I do have a suspicion that it could retest my green trendline, but that's still a lot lower from here, and there are a couple key support levels in the way.
I want you to look at the head and shoulders pattern formed at the all time high again. You can see that after it was formed, BTC created a smaller mixed series of head and shoulders patterns before breaking down. We could see something similar here, where BTC forms a series of inverse head and shoulders patterns, over the next month or so, before the upside breakout actually occurs.
Note
In terms of the failed breakout that we saw yesterday, I'd like to draw your attention to the multiple failed breakdowns that occurred in BTC, after the all time high. there was one on 12/22, 12/24, and 12/30. If I would have abandoned my analysis on any one of those breakdowns, I would have lost sight of my downside target of 5700, which was only missed by 300 or so points. That is undeniable accuracy, and I attribute it to my ability to read formations. With that said, I believe that the inverse is still strong, and an upside breakout, is still in the cards for the future. That could change, if things get nasty, but right now, all we have is a small failed breakout. For now, look to the 200 EMA for support, followed by the black down-sloping trendline, and then the green trendline support. A break below there would put a retest of the pink channel in play. A break back into the channel, would be a very negative development.
This has been your not-so-humble market wizard, droppin' knowledge like bombs in this place! Please follow, comment, like, and share on social media. Good luck trading everyone!
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-Magic loves you-
-JD-
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