Whereas Bitcoin (BTC) was hovering at $6,500 earlier this week, it has since rebounded to the resistance zone of $7,800 but failed to break it on the first attempt.
Crypto market daily performance. Source: Coin360
As the short term trend is still upwards, should traders be cautious about the recent price action? Let’s take a look at the charts.
Bitcoin still inside the downwards channel
The more notable timeframe — the daily in this case — is still showing a downward trending channel since the top at the end of June 2019.
BTC USD daily chart. Source: TradingView
This downwards trending channel is still active as the price bounced back from the “support” line and the 0.618-0.65 golden ratio Fibonacci level earlier this week.
The green zone around $6,500-6,800 can still be seen as a significant support level here, while the upwards red/yellow area is showing significant resistance. The resistance area is in the $8,000-8,200 zone, which is also around the trendline of the downwards channel.
The total crypto market cap rejected at first resistance
Total crypto market capitalization daily chart. Source: TradingView
The total market capitalization of crypto is showing a similar view as BTC/USD at this point. The market cap held the green zone as support — which is crucial — but couldn’t break the first resistance.
The overall market cap chart often provides a more unobstructed view than Bitcoin regarding price movements and, in this case, is also showing some clear signals.
Total market capitalization chart. Source: TradingView
In this regard, the price retraced to the earlier resistance in April of this year.
Currently, the price has tested whether that level can be confirmed support and did just that with a bounce from $175 to $207 billion. However, the first resistance at $207 billion was rejected, which suggests a potential retest of the purple area is in order.
If the purple area manages to hold, the total market capitalization is moving inside a vast falling wedge pattern, which is likely to break out in January 2020.
First resistance rejected at smaller time frames
BTC USD 4 hour chart. Source: TradingView
The BTC price has seen a surge of $1,300 during the week from $6.5K. However, it was not able to break through the next resistance at $7,800. But why is this a key resistance level?
The left side of the chart shows that the price bounced several times at this support level before it broke down. Such a level is a reference point for traders looking for selling opportunities (or opening shorts), and thus, the price reversed and confirmed the $7,800 level as resistance.
Before this test occurred, the price first flipped the $7,350-7,400 resistance into support. In this regard, the price is now stuck in a range, where these numbers are now defining the bounds.
Is that bad? No, the price has been hovering inside such a range for the entire month of October before volatility kicked in.
Bullish scenario
Now, several scenarios can be classified as bullish or bearish on multiple timeframes. As long as $7,350-7,400 remains support in the near term, another push towards the red/yellow area can occur with a target of $8,000-8,300.
Personally, I am not expecting to see an immediate breakthrough as that would be the first attempt to be testing this resistance. Usually, resistances don’t get broken on the first attempt.
For the bulls, breaking and flipping this $8,000-8,300 level into support would be ideal, which would also cause the price to break out of the downtrend. If the price is not able to do this, it will continue to move within this downwards channel.
Bearish scenario
BTC USD bearish scenario 1. Source: TradingView
Now, I will explain multiple bearish scenarios as a few different ones are possible. The first scenario is a breakdown towards $7,350-7,400 area for a test of support (as that’s a significant support area).
A potential weak bounce to $7,700 can occur from this level of support, which I’d classify as a short opportunity before the price is ready to break downwards to $6,900-7,000 area.
BTC USD bearish scenario 2. Source: TradingView
The second bearish scenario is classified as bearish and bullish at the same time. Why? Well, if the price can hold the $7,350-7,400 and bounce significantly from it, another push to the upper resistance zone can be expected.
However, if the price is not able to break through $8,000-8,300 again, then that would be a great short opportunity before another move down towards $7,000.
In this case, some more upward momentum could occur. Though, I’d be personally looking to short rather than long here at these levels should this scenario play out.
Conclusion
As a whole, recent price action has presented a nice v-shaped bottom that occurred at the $6,500 level through which the 0.618-0.65 Fibonacci level and trendline held up.
However, does it mean that the downwards pressure is over for now? I don’t think so. To confirm a bottom, I will be expecting some more backtests of lower levels in the $6,900-7,000 region (green zone) in the coming months.
Nevertheless, the macro perspective is still bullish, and in this regard, I still see this retracement as a macro “buy the dip” opportunity if the green zone around $6,500-6,800 can hold.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.