Bitcoin markets rallied a bit on Wednesday to reach towards the 200-day EMA. That being said, the indicator has caused a significant amount of resistance, as we have turned around to form a shooting star. Furthermore, we also have to keep an eye on the $45,000 level which is just above the 200-day EMA, so altogether that does offer a significant amount of resistance.
If we were to break above the $45,000 level it is likely that Bitcoin would continue to go much higher. This would effectively finish off a “W pattern”, suggesting that the next move would be to the $51,000 level. Obviously, the $50,000 level is an area that would cause a lot of headline noise, and people would be attracted to it. Having said that, I think the market is probably somewhat limited in its ability to break above all of that.
On the downside, if we were to break down below the 50-day EMA, then it is likely that we could go looking towards the $40,000 level. Breaking down below that level would kick off even more selling, perhaps sending Bitcoin down to the $35,000 level. We have seen a bit of a double bottom form in that area, so breaking down below that would obviously be a very negative turn of events.
The question at this point is whether or not the reaction in the market over the last couple of months has simply been a consolidation that sets up for continuation, or are we trying to find enough support to turn things around? As things stand right now, it does not look like we are ready to break out quite yet, so we will have to pay close attention to the overall monetary policy coming out of the Federal Reserve as it seems to be one of the biggest factors working against Bitcoin.
In the meantime, one would have to assume that we are going to continue the overall consolidation and that we are at the top of the range. In fact, it looks as if we have seen a bit of profit-taking during the day on Wednesday, so it all seems to be coming together for a little bit of a pullback. One thing that you can control is position sizing, so make sure that you are taking advantage of risk management.
