Bitcoin (BTC/USD) has spent the last week consolidating within a bearish triangle formation. To the downside, support in the mid-55,000 area has been supporting the price action. To the upside, a downtrend linking the 10th and 12th of November lows and 16th, 18th, 20th, 21st and 22nd November highs have been capping the upside.
Given BTC/USD’s continual printing of lower highs despite support in the 55,500 area holding firm, the price action has been getting squeezed. As is typically the case with bearish triangles, a bearish break in the short-term is the most likely scenario. Should such a break occur, bitcoin bears would likely target a move to the next area of key support just under 53,000, a high from early September.
But if the bulls hold firm
Conversely, should the bulls stave off a break below the mid-55,000s and instead force a break above the recent downwards trendline, a move back towards the 50-day moving average around 60,500 would be on the cards. Just this month, the 50DMA has already proven a key level to watch, providing strong support to the price action back on the 17th of November, only to then offer solid resistance once prices had broken lower on the 20th and then 21st of November.
Further complicating the quest of the bulls to return BTC to its recent record levels at 69,000 is the presence of the 21DMA in the mid-61,000s, slightly above the 50DMA. Above that, there is then more resistance in the form of 10th and 12th November lows in the 62,000s. A near-term break above all of these levels of resistance might prove challenging, with bitcoin instead opting to consolidate within the 55,500-60,000ish range it has carved out for itself in recent days.
A dip to the September low a buying opportunity?
It might reasonably be asked whether, in our more bearish scenario where the descending triangle breaks to the downside, ushering a push lower to support around 53,000, presents a buying opportunity for BTC. Indeed, since May, BTC has demonstrated the beginnings of a pattern where it consolidated within a range for a few months, then broke to the north of this range, then fell back to test the top of the old range, then pressed higher again. Who’s to say a drop back to the top of BTC’s August to early-October 41,000-53,000ish range won’t see the pattern repeat itself once more.
Furthermore, bitcoin’s 14-day Relative Strength Index current, which currently sits just above 40.00, would probably fall under 30.00 in the scenario where BTC drops all the way back to the 53,000 area. Whilst this hasn’t historically been the best short-term buy signal, it has successfully signalled that selling pressure may soon run out of steam and that trading conditions ahead are set to be more consolidative.