BTCUSD: Elliott Wave and Technical Analysis | Charts – May 22, 2020
Summary: Upwards movement may shortly be interrupted by another deep multi-week pullback, which should remain above 4,106.981. Thereafter, the upwards trend may resume with increased strength towards new all time highs.
A new swing high above 10,457.627 would provide confidence that Bitcoin may be forming another huge bubble.
The data used for this analysis comes from Yahoo Finance BTC-USD.
Monthly and weekly charts are on a semi-log scale. The close up daily chart is on an arithmetic scale.
MAIN ELLIOTT WAVE COUNT
It is possible to see a completed five wave impulse upwards for Bitcoin.
I am unable to find many reasonable Fibonacci ratios within this wave count. It appears that Bitcoin may not exhibit Fibonacci ratios very often between its waves, so this makes target calculation impossible. Classic technical analysis was used to identify a high in place on December 23, 2017.
What is very clear from this chart is that Bitcoin forms classic bubbles. It has done so now several times and may now be doing so again. So far each bubble has popped and Bitcoin has collapsed, to then thereafter form a new bubble. Each bubble is larger than the one prior; so if another Bitcoin bubble is forming, it may be expected to take price substantially above the all time high.
Bitcoin tends to behave like an extreme commodity: price moves upwards for about 2 – 4 weeks in a near vertical movement at the end of its rises. Following this vertical movement the resulting downwards movement is very deep (in percentage terms) and often very quick.
The next rise begins slowly with basing action over weeks or months, and then as the rise nears its end another vertical movement completes it. Also, there are volume spikes just before or at the end, which is another feature typical of commodity like behaviour.
This has happened now several times. The most notable instances are the rise up to the week ending 24th November, 2013, and the week ending 5th June, 2011. The following sharp drops were 94% and 93% respectively.
The last instance was the rise up to the last all time high for Bitcoin at 19,870.62 on the 17th of December 2017. The drop thereafter may now be considered as highly likely to be complete. If the drop is complete, it was only an 84% drop (labelled cycle wave II).
Cycle wave II may be a complete zigzag.
Cycle wave III must move above the end of cycle wave I at 19,870.62. It must move far enough above this point to allow room for cycle wave IV to unfold and remain above cycle wave I price territory.
Cycle wave I lasted 7.2 years and cycle wave II may have been over within just under one year. It would be reasonable to expect cycle wave III to last about 7 years, possibly a Fibonacci 8 or 13 years. At this stage, it may be now within its 17th month.
Cycle wave III must unfold as a simple five wave impulse, and within this impulse there should be two large corrections for primary waves 2 and 4. It is possible that primary wave 2 could be complete. If it is complete, primary wave 2 would be a normal depth of primary wave 1 and still in proportion to primary wave 1 in terms of duration. Primary wave 2 looks like an obvious three wave structure.
If this wave count is correct, then a third wave up at two large degrees may have begun. Targets will not be calculated as Bitcoin does not reliably exhibit Fibonacci ratios, so classic technical analysis will again be used to identify the next major high in place.
Primary wave 3 would very likely be much longer than 4.236 times the length of primary wave 1. Primary wave 3 would very likely end with a blow off top after a vertical rise of 2 to 4 weeks. Primary wave 3 must move far enough above primary wave 1 to allow room for primary wave 4 to unfold and remain above primary wave 1 price territory.
Primary wave 3 may have begun. It may only subdivide as an impulse.
Intermediate wave (1) within primary wave 3 may be nearing an end in about 3-5 more weeks. When intermediate wave (1) may be complete, then intermediate wave (2) may be another multi-week deep pullback. Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 4,106.981.
Although the direction arrow is straight, this is not how markets move. The direction arrows are provided as a general guide only, to indicate the expected direction for a trend at each time frame. It is normal for an upwards trend to have downwards pullbacks and sideways consolidations within it. Markets do not move in straight lines.
WEEKLY – ALTERNATE
If the degree of labelling within cycle wave II is moved down one degree, it is possible that cycle wave II may be an incomplete double zigzag.
This wave count remains technically possible.
The purpose of a second zigzag in a double is to deepen a correction. To achieve this purpose primary wave Y would be expected to end reasonably below the end of primary wave W. The target would see this purpose achieved.
Within the zigzag of primary wave Y, intermediate waves (A) and (B) may be complete. Intermediate wave (C) must subdivide as a five wave motive structure. Within intermediate wave (C), no second wave correction may move beyond the start of its first wave above 10,457.627.
Invalidation of this alternate wave count would add confidence to the main wave count.
At this time frame, On Balance Volume should be watched carefully. A breakout of the narrow range would offer a signal. It is not concerning for the Elliott wave count that April lacked support from volume, because looking at the price and volume history of Bitcoin on this chart this is normal early on in a new trend.
The following characteristics can be noted at the end of prior major highs for Bitcoin:
The first sharp rise to the week beginning 5th June 2011: near vertical movement for several weeks, a sharp volume spike for a blow off top on the final week, and no candlestick reversal pattern on the weekly chart but an Evening Doji Star on the daily chart. The following correction was 0.94.
The next sharp rise to the week beginning 7th April 2013: near vertical movement for three weeks, a sharp volume spike on the final week that closed red and formed a Bearish Engulfing pattern on the weekly chart, a Bearish Engulfing pattern on the daily chart, ADX remained very extreme for most of the rise, and single week bearish divergence between price and RSI at the end. The following correction was 0.82.
The next sharp rise to the week beginning 24th November 2013: vertical movement for four weeks, a strong rise in volume until the last week (which saw volume fall), a Bearish Engulfing pattern on the weekly chart, an Evening Doji Star on the daily chart (the third candlestick of which had strong support from volume), ADX reached very extreme for many days, and RSI reached extreme overbought and there exhibited single bearish divergence. The following correction was 0.93.
The last sharp rise to the all time high at 19,870.62 on the 17th of December 2018: vertical movement for three weeks, a strong increase in volume up to the last week (which saw a fall in volume), a Bearish Engulfing pattern on the weekly chart that had support from volume; on the daily chart, ADX reached very extreme for a coupe of weeks or so, RSI reached overbought and there exhibited single bearish divergence, and early downwards movement from the high had support from volume. The following correction was 0.84.
Some conclusions may be drawn about how to identify a major high in Bitcoin:
– Look for vertical movement on the weekly chart for at least two weeks, and possibly up to several (although when it is more than three the movement may be interspaced with a small pause).
– Look for either a sharp volume spike for a blow off top, or a strong increase in volume then followed by a single week of lighter volume at the possible high.
– A bearish candlestick reversal pattern has been seen so far at every major high for Bitcoin, so an absence of any candlestick reversal pattern at a potential high should be viewed very suspiciously.
– ADX is of no use as it may remain very extreme for long periods of time.
– RSI may also remain very extreme for long periods of time and may not exhibit any divergence, but it may add a little confidence in the high if it does exhibit bearish divergence in conjunction with other indicators being bearish.
The last vertical rise to June 2019 now exhibits enough of the points looked for to have some confidence that Bitcoin may have found an interim top: vertical movement for three weeks, a volume spike on the last week, and a very bearish long upper wick on the candlestick at the high, although this is not a candlestick reversal pattern.
The following can be noted when looking back at Bitcoin’s behaviour during its previous strong falls in price:
The 94% fall in price from June to November 2011 was characterised by:
– Three clearly separate instances of RSI reaching oversold on the daily chart, separated by bounces.
– ADX did not remain very extreme for very long at all on the daily chart.
– On Balance Volume exhibited weak single bullish divergence at the low.
The 93% fall in price from November 2013 to February 2014 was characterised by:
– RSI reached oversold and remained deeply oversold for three weeks; at the low, there was only single weak bullish divergence with price.
– ADX remained very extreme for the last seven sessions to the low.
– At the low, On Balance Volume did not exhibit bullish divergence with price. It remained bearish and then exhibited further bearishness after the low as it continued to decline as price began to rise.
The 84% fall in price from December 2017 to December 2018 was characterised by:
– RSI reached deeply oversold and then exhibited double divergence with price.
– ADX reached very extreme 20 sessions prior to the low.
– At the low, On Balance Volume exhibits no bullish divergence with price; it turned with price.
At this last low now on March 13th 2020, the following can be noted:
– There is no Bullish candlestick reversal pattern.
– An instance of single day bullish divergence between price and On Balance Volume.
– An instance of single day bullish divergence between price and RSI after RSI reached reasonably oversold.
– ADX had not reached extreme.
The low of March 13, 2020, is still inconclusive. It may only be an interim low; it may not be sustainable. A new swing high above 10,457.627 would be required for confidence that this low is sustainable.
Published @ 08:00 p.m. EST.
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