Flight to Safety
In our previous analysis we proposed to buy the Bitcoin price breakout above $5,000:
By the time of posting the Bitcoin has rallied above $7500 and it can not be excluded to see it spiking even higher; it is noteworthy that this uptrend started from a price low of $188 in August 2015:
So where do we go from there in case you have missed this latest rally and are now looking to invest in Bitcoin?
Overbought set-up definition
In the following price charts we review all instances of overbought set-up consisting of the combination of significant up-moves with diverging lower volatility band and strongly oversold RSI-9 indicator encountered over the last two-year period. This choice is motivated by the fact that the recent price configuration shows a similar pattern on multiple time frames (from daily to monthly), as we will see later on. Therefore any up moves with technical conditions different from those described above and encountered over the same period of time are not taken into consideration in order to compare similar technical set-ups only.
Daily Price Chart History of the long term uptrend since the mid of 2015
November 2015 overbought set-up
Following a major spike higher this first significant overbought set-up ended with a sharp correction towards and then below the 20-period moving average (M20).
April 2016 overbought set-up
The next overbought set-up ended as well with a deep corrective move towards M20 and later on with the price plummeting even deeper.
June 2016 overbought set-up
The initial overbought set-up was actually part of a stronger uptrend. The corrective move was shallow and stopped at the rising 7-period moving average (M7). Due to the strength of the uptrend the overbought status has been maintained much longer this time until the next price correction ensued.
September 2016 overbought set-up
Here again the corrective move brought the price back towards M20 and was eventually supported by the lower volatility boundary.
October 2016 overbought set-up
In this overbought set-up situation a significant divergence of the lower volatility band occurred not in the beginning but rather towards the end of the up move and it ended as well with a sharp correction that became supported above M20.
December 2016 overbought set-up
Whereas the long term uptrend is gaining steam on the longer time frames the trends on the lower time frames tend to become more vigorous and to last longer, in which case any short term corrective move become supported by higher supporting areas such as the combined trending M7 / Parabolic indicators.
Feb 2017 overbought set-up
Here again the strong longer term uptrend limits the depth of the corrective move on the daily time scale as it became supported above the rising M7 and Parabolic indicators.
A deeper spike is observed but it was rapidly countered and never did the price correction permitted a close below M7, which once again proved to be a very strong support in a major uptrend.
August 2017 overbought set-up
After almost a doubling in the Bitcoin price in the space of three weeks the developing overbought set-up induced a logical correction towards M20 but without even compromising the longer term uptrend:
Bitcoin Weekly Price Chart for 2016
Securities price variations are following a fractal structure, which means that similar patterns are observed on various time frames. Throughout 2016 the weekly Bitcoin price configuration produced two similar instances of overbought set-ups as observed on the daily time frame.
Both the strength of the underlying uptrend and the deviation from the moving average defines the depth and length of the ensuing price corrective pattern.
In both cases strong deviations from the upper volatility envelop resulted in sharp moves spiking lower but becoming supported by rising supporting lines: M20 in case of the weaker may up move and M7 in case of the stronger end of year up move.
Where do we go from there?
On the daily time frame following a series of green candles and an extremely overbought RSI indicator a corrective move becomes overdue and should occur over the coming days:
On the weekly time frame the price deviates significantly from the upper volatility boundary. Some level of consolidation should intervene any time soon before possibly higher prices:
On the monthly time frame the overbought condition appears to be extreme. This does not mean that any spike higher could not happen but the most probable outcome is for the Bitcoin price to correct lower towards at least the rising M7 / Parabolic indicators as the closest supporting area.
Bottom line for the Bitcoin price
Overbought set-up conditions always imply some level of price correction, which lesser extent is to reach into the area of M7 / parabolic indicators. Due to converging oversold set-ups on the daily, weekly and monthly time frames some price set-back into the $6000 area appears almost inevitable. The question remains if from the $7575 level reached shortly before the time of posting this will happen sooner or rather after another push higher.
For the prudent investor it seems really too late to take position now. The market should provide another opportunity to buy later and at a lower price.