The Set Up:
Yesterday, we saw bitcoin turn sideways, retreating from 244 but respecting the 231 support pivot. As price rebounded, we noted a potential development of the right shoulder of a head and shoulders pattern. The theory is that is price can hold under 238, a right shoulder would be formed and the pressure would be on the 231 neckline. As we began the May 7th Asian trading session btcusd fell sharply, breaking the neckline sharply with strong volume.
Bitcoin (BTCUSD) 1H Chart May 7
(click to enlarge)
The 1H chart shows the head and shoulders pattern. Note a few other things:
1) The RSI is already showing development of bearish momentum as it tagged 30, held under 60, and tagged below 30 again.
2) Price crossed the 100- and 50-hour SMA and respected them as resistance, which is a bearish “slingshot” signal.
3) Price just broke below the 200-hour SMA, removing another bullish bias.
With the H&S pattern in place, bitcoin is poised to fall towards the 214 low from last week.
Bitcoin (BTCUSD) 4H Chart May 7
(click to enlarge)
The 4H chart shows the head and shoulders pattern as well. We see it completed in the context of a market that is failing to establish a price bottom. after breaking above a resistance pivot around 239 from April. Note price falling below the cluster of 200-, 100-, and 50-period SMAs with the RSI falling below 40. This shows removal of the bullish bias and momentum.
Instead of a price bottom, price action since mid-April looks more like an expanded flat. This means not only is the pressure towards the 214 low, there is further downside risk in-line with the prevailing downtrend. To the downside, beyond 214, the 166-167 low on the year would be in sight, although we should also expect some buyers around the psychological level of 200.
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