This morning marked another bearish day in the crypto-space as the entire market cap continued its multi-week-long decline. As referenced in a previous BTC-USD price analysis, we have continued to test the neckline of a massive, multi-week-long Head-and-Shoulders reversal pattern. At the time of this article, the market is making its second test of the ascending trendline (marked in yellow).
Figure 1: BTC-USD, 6-hr Candles, Gemini, Head-and-Shoulders Pattern
A breakdown of the ascending trendline typically marks a very characteristic, sustained market reversal that, in our case, has a price projection in the upper $1,800 range (see this previous analysis for a detailed breakdown of Head-and-Shoulders price target calculation).
When confirming the Head-and-Shoulders reversal pattern, key support levels on the way down toward its price projection include the following markers:
Figure 2: BTC-USD, 6-hr Candles, GDAX, Key Support Levels
A break of the ascending trendline is often initially rejected before continuing its trend downward — hence, the multiple attempts to break the trendline. However, typically, a sustained move below this trendline is very likely to continue downward and test the next two support levels.
The first attempt to complete the right Shoulder/the first attempt at breaking the ascending trendline was rejected in the form of a Double Bottom Reversal (see this previous analysis for details). At the time of this article, we are making a test of the key, pivotal support line that began the Double Bottom Reversal. A breakdown of this support line is one of the first signs that a long-term, sustained bear market is likely.
The initial support line that separated the “Head” from the right “Shoulder” is of specific significance because the high volume shows the failed market attempt to rally off the largest drop in price since the high $2,900s.
When looking at support lines, it’s important to keep in mind that these are not concrete, rigid lines. Rather, they are elastic and should be treated more like “zones” of support, rather than “lines.” One thing to consider when trading the Head-and-Shoulders pattern is that an initial strong move below the neckline is often rejected along a known support line and will lead to a re-test of the neckline from the bottom. A break below the descending trendline support will ultimately become a strong level of resistance. Below are the potential price trajectories should the market decide to break below the descending trendline:
Figure 3: BTC-USD, 6-hr Candles, GDAX, Support Line Tests
BTC-USD is currently in the process of testing crucial support levels of a Head-and-Shoulders reversal pattern.
Failure to maintain support could have a potential sustained bear market with a price target of approximately $1,800.
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