• Francisco Hernandez

Catching Bitcoin? A falling knife.

BTC-USD, 1D, BTSE


Introduction

Bitcoin (BTC) price (as of now) has dropped ~27% since yesterday's close. In just one day, Bitcoin sees a giant red candle. Is it time to try and catch the falling knife or is Bitcoin looking at dropping further? Let's look at what the charts have to say. I'll identify support areas and look at what the indicators have to say.

Fibonacci retracements.


Supports and resistance

Fibonacci retracements

According to the Fibonacci retracements, Bitcoin (BTC) is looking at support in the 78.6% Fibonacci area of $5,438.43. It would not be surprising if Bitcoin hits this area. Generally, in traditional markets, if a stock break past the 61.8% retracement area, it's considered a goner. Bitcoin is not a traditional market so it may not behave like one. However, the people who participate in the Bitcoin market, they behave similarly. I would like to see this chart play out over the next few days given this dump is so fresh.


Bollinger Bands

Bitcoin (BTC) price has been in the lower Bollinger Band (BB) for the last couple weeks. It had bounced off the lower end and met the middle band (aka the 20-day moving average). As of this moment, Bitcoin is way below the lower band. This is a significant drop in price in such a little amount of time. When prices reach the lower band, they are already at two standard deviations from the 20-day moving average (MA). Within two standard deviations, 95.45% of the price data within the last 20 days are accounted for. So when prices reach the upper or lower bands, that suggests price has made significant increases/decreases in reference to the given time period. In this case, it is clear this is a significant decrease. Bitcoin's price right now is about 3.5 standard deviations away from the 20-day MA. Given this large drop in price, I do expect things to settle down a little, particularly around the lower BB. I even expect price to approach the middle band.

Bollinger Bands.


Moving averages and exponential moving average

Bitcoin (BTC) has torn through all the MAs. The 20-day MA (red) has crossed the 50-day day MA (orange) and is approaching the 200-day MA (green). If the 20-day and the 200-day MAs cross, Bitcoin is likely to see more down side. The exponential moving average (EMA) has broken through all the MAs. Each cross the EMA made could have been taken as a bearish signal. Since the EMA follows the price much closer than an MA, it is considered a leading indicator when used together. This is why I expect the 20-day MA to cross the 200-day MA; and even perhaps the it will cross the100-day MA. However, price typically follows the EMA closely. Therefore, I expect price to approach the EMA sooner than later. This would signal that downward momentum is waning.

Moving averages and exponential moving average.


Indicators

MACD

By glancing at the MACD indicator, it looks bearish right away. Both MACD line (blue) and signal (red) lines are below the zero line and are both pointing down. The MACD shows no signals of reversal at the moment. Until I see the lines level out horizontally, I expect more downward movement.

MACD.


On Balance Volume

The On Balance Volume (OBV) is suggesting some divergence. The OBV hit a low in early March and bounced up to a peak, making a higher high and a higher low. This makes sense given that Bitcoin has made a year-to-date high. It was inevitable that a price correction was to follow. At least, this is what the OBV is starting to suggest. Should the OBV hold around this area, it could prepare Bitcoin to break it's year-to-date high. If it breaks down below this current area, Bitcoin will see lower prices.

On Balance Volume.


Chaikin Money Flow

The Chaikin Money Flow (CMF), along with the MACD, is bearish. It dropped to the down side, bounced, made a lower low, bounced with a lower high, and is facing back to the downside. It looks like the CMF is going to make another lower low.

Chaikin Money Flow.


Conclusion

Bitcoin (BTC) dropped about 27% from yesterday's close. Is it time to buy in and catch the falling knife? It is to early to tell. This could be the bottom and from here we see Bitcoin break past its year-to-date high of $10,518. At the moment, I think this is unlikely. Price has significantly dropped. Naturally, I would expect some consolidation before any more dramatic movements. However, the indicators are suggesting we are still in a bearish trend. As my personal rule of thumb, I believe that when Bitcoin makes these sudden drops in price, it is a good time to dollar cost average and stack sats. Even if Bitcoin does continue to drop, it would just provide another opportunity to stack more sats. Regardless, I expect some consolidation around this area. If price continues breaks down further, I expect price to reach as low as $5,438.43. Otherwise, Bitcoin could retest the 61.8% Fibonacci area of $7,236.13.

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