Bitcoin (BTC) Reaches $116,000: Is a Pullback Looming?

Bitcoin (BTC) hit the $115,700 horizontal resistance level early on Friday, plus it touched the top of an ascending channel. The price has rejected from these barriers, and given that short-term momentum has topped out, is this an ideal point to start the next downward price impulse?

Bitcoin shrugs off slightly negative inflation and jobs release figures

After a better than forecast PPI release on Wednesday, the CPI release on Thursday was not favourite for a repeat performance, and the resulting slightly worse than expected figure proved this. Completing Thursday’s more gloomy picture was a rise in unemployment claims from the 235K that was forecast, to the actual release figure of 263K.

Nevertheless, both the US stock market and Bitcoin shrugged off these negatives with gusto, with the market no doubt mindful of the upcoming rate cut next week. The S&P 500 finished up 0.85%, while Bitcoin rose 1.35%.

$BTC perfectly respects ascending channel

Source: TradingView

The 4-hour chart for $BTC shows that the price action has been carefully respecting first the descending channel, and then the current ascending channel. The tippy top touch of the upper trendline of the ascending channel was textbook, and if the price action is going to continue to respect this channel, it’s likely that a corrective downward price impulse will take place from here. It must also be noted that the $115,700 horizontal resistance level matches the 0.5 Fibonacci level exactly - another good reason for this rejection. 

Looking at possible downside targets, the 0.5 Fibonacci comes into play again. This time, looking at the Fibonacci extensions going lower, the 0.5 Fibonacci corresponds exactly with the $113,500 support. Lower still, the 0.618 Fibonacci level is at $112,850, while the deepest Fibonacci level of 0.786 comes in at $111,950.

That last 0.786 Fibonacci level may coincide with the bottom of the rising channel, which would be an excellent place for the correction to peter out and a new upward impulse wave to begin.

Of course, this is all conjecture, but it is based on the near-perfection of the price action as it traverses this ascending channel, respecting the top and bottom trendlines as it goes. If there is a breakdown of the channel at the bottom, the bulls will need to defend $110,800 in order to prevent the formation of a lower low.

Daily chart shows indicators faltering

Source: TradingView

The daily chart also tends to lend its weight to a period of consolidation now. The 50-day SMA (blue line) is still on its way down, and may eventually come down to the rising 100-day SMA (green line). Although given that the $BTC price is still in an uptrend, perhaps this may only be for a potential shallow dip of the 50-day below the 100-day.

The daily Stochastic RSI indicators have reached the top of their limit and so a cross back down is likely to occur. That said, these indicators could bounce around for an extended period like they did in June/July, and therefore may not signal faltering upside price momentum yet. 

The RSI, at the bottom of the chart, reveals that the indicator is starting to angle back down, even before reaching the downtrend line.

How far down could $BTC go?

Source: TradingView

In the weekly chart it can be seen that if the $BTC price is rejected from the $115,700 horizontal resistance, which does look as though it will happen, the next horizontal support below is at $113,500. 

Also, should this correction continue, the indicator lines in the Stochastic RSI will possibly draw apart by the end of the week and not confirm a cross-up. 

Putting it all into context

All these negatives that have been mentioned so far in this article have to be put into context from a more macro perspective. If a correction takes the price back down and the weekly candle closes below $113,500, the correction could continue. However, the very strong horizontal support at $108,000 awaits below. Even if the price did get down to this level, the weekly Stochastic RSI indicators would have reached the bottom and would be poised for the next rise to the upside. This next wave upwards of these indicators has the potential to signal enough upside price momentum for bitcoin to have at least one more big rally. Moral of the story - don’t get caught up in the weeds.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.