Bitcoin's Bullish Break-Out
I have been watching Bitcoin form what is known as a bullish pennant continuation pattern since June 11th, 2020. I last wrote about it on July 9th. In that article, I stated that I would not like to extend the pennant pattern any more as 8 weeks is considered long enough for it to form. However, that is not to say it would not form in a few more weeks. This continuation pattern can take up to 12 weeks to form, although it is considered a long time for it. From the looks of it, the continuation pattern took the full 12 weeks to form (see weekly/daily chart below). In the remainder of this article, I look at the daily chart and evaluate the current environment.
Bullish pennant continuation pattern break-out, weekly chart
Target price and Fibonacci retracements
Below is a similar chart as above except on the daily chart. From the low of the year back in March 2020 and up to the 50% Fibonacci retracement level, Bitcoin made a 121% increase and then moved sideways for 12 weeks. According to the pennant continuation pattern, a similar increase can be expected from the 50% retracement level.
Bullish pennant continuation pattern break-out (and percent range), daily chart
If I use percentage (i.e., 121.01%) to calculate the target price, then I expect an increase to around $11,883.79. If I use the increase in dollars (i.e., $5,377), then I expect an increase to around $15,197.5. Given there are a few levels of resistance with the latter target price, $11,883.79 is the most likely. This target price is near the next resistance level at the 38.2% (i.e., $12,138) retracement level.
Target price with percent and dollars
There has been sideways movement since early May 2020. I can tell because each of the moving averages were essentially moving parallel. However, about a month ago, the 100-moving average (i.e., MA; yellow) crossed over the 200-day MA (green), forming a golden cross. As of a few days ago, another golden cross formed with the 20-day MA (red) and the 50-day MA (orange). I really like how the MAs are stacking up; they are all in order: 20-, 50-, 100-, and 200-day MA, from top to bottom.
20- and 50-day moving average golden cross
With the Bollinger bands, price remained within them, suggesting price was stable. Therefore I focus the chart below on the most recent candles. Starting around July 22nd, 2020, price began to test the upper band, broke past it, and closed above it. This happened again in the last week. When the candle closes above the upper band, it is considered bullish. The momentum could continue all depending on how the current candle closes. If price closes at this level or below the upper band, it could suggest momentum is slowing. Should price rise and close modestly above the upper band, it could suggest continued upwards momentum.
Bollinger band break-outs
The heikin-ashi technique suggests upward momentum is slowing. However, the trend is still bullish. I can tell momentum is slowing because the current candle is small and has a short upper wick. A bullish candle would look like the candle from three days ago. This candle has a large body with a long upper wick. The key to identifying trends with the heikin-ashi technique lies in the shape of the candle(s) and the location and length of the wick(s).
Heikin-ashi suggests slowing momentum
On balance volume
The OBV has made a significant increase in the last month, making higher highs and lows. However, it appears the OBV has a bit to go before reaching prior highs. Also, the OBV show slowed momentum in the last couple days and is currently pointing downwards.
On balance volume
Chaikin money flow
The CMF appears to be in a good spot; above the zero line and making a series of higher highs and lows in the last month. Like the OBV, the CMF still has a couple of prior highs to challenge. However, reaching these levels seems more attainable for the CMF.
Chaikin money flow
The MACD has been on the downward move since early May 2020. The MACD then tested the zero line for about a month. Then, as is seen in the charts, the MACD line (blue) has made a massive increase. Following behind it was the signal line (red). Generally, the MACD continues on an upward trend and looks bullish.
Bitcoin appears to have completed a bullish pennant continuation pattern with the recent break-out. It took Bitcoin 12 weeks to form it, but it has appeared. Based on my most conservative target price, I expect price to rise to around $11,883.79 or $12,138 (i.e., 38.2%) retracement level. This would be a similar percent increase (i.e., 121%) to what Bitcoin saw from the bottom in March 2020 to the peak in early May 2020. Price is already relatively close to that target so it would not be surprising if it does not reach that area and remains around the current levels. Additionally, some of the indicators and the heikin-ashi technique are suggesting slowing momentum. I want to wait to see how the current candle closes and keep an eye on price action for next few days. Finally, on a side note, a friend of mine (a Bitcoin cynic) is suggesting this pump is wiping out all the shorts before the big fall. I, generally an optimist, hold differing views on Bitcoin.
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