Chart of the day: why Bitcoin’s rally won’t last

The largest cryptocurrency by market capitalization has been in a severe slump since mid-March. Recently, however, the digital token appears to have recovered after being badly needed by a variety of fundamental influencers.

On Wednesday, Tesla (NASDAQ 🙂 CEO Elon Musk, who famously stated earlier this year that the EV maker would accept BTC as payment for the company’s vehicles, made it back in May and just turned it around again. Yesterday, at an event hosted by the Crypto Council for Innovation, he hinted that his Palo Alto, California-based company may rethink its policy on Bitcoin as a payment option.

At the same event, Cathie Wood, head of ARK Investment Management, defended Bitcoin as an inflation hedge during a panel discussion that was also attended by Jack Dorsey, CEO of Twitter (NYSE 🙂 and Square (NYSE :), who also defended cryptocurrency.

Bloomberg also stepped in, citing a technical signal as a reason to be bullish on the Bitcoin rally. The news right now may support Bitcoin, but we are pessimistic. Here’s why:

BTC / USD price found support at the January low, the USD 29,000 level we tracked after reporting it as our line in the sand. As we have said before, if the digital currency were to exceed, we would become decidedly pessimistic as there is no safety net of support left to a significantly lower level at that point.

Although the digital token has just topped $ 32,000 at the time of writing, we are viewing yesterday’s surge as merely a return move retesting the descending triangle. This is a pattern that shows that sellers are attracting buyers.

Once the trough subsides, it will be a signal that all panic – and short – sellers’ demand has been overcome. This move is likely to trigger long stop losses and a new wave of short selling that will force the price down.

The placement of the descending triangle within the supply-demand chart is instructive. It’s positioned just below an H&S top that was pushed down by a Death Cross as the 50 DMA fell through the 200 DMA.

Since then, the 100 DMA has been dragged under the 200 DMA, forming a triple retrograde pattern – each MA is positioned under a longer one. This shows that prices are not only falling over a narrow period of time, but falling across several average comparisons.

A downside breakout of the triangle that completes the bearish structure would undo the January low before heading towards $ 22,000.

Both volume and RSI are clearly showing negative divergences. The latter broke its short-term uptrend in momentum since May but turned down after returning to the top of its falling channel forecasting a decline.

Trading strategies

Conservative traders should wait for the price to close below $ 29,000 before going short.

Moderate traders could risk a short if the price closes below the key psychological round level of $ 30,000, confirming that the pattern remains a bearish stronghold.

Aggressive traders would short at will provided they read, understand the risks and have a solid trading plan. Here is an example:

Trade pattern

  • Admission: $ 32,000
  • Stop loss $ 33,000
  • Risk: $ 1,000
  • Goal: $ 29,000
  • Reward: $ 3,000
  • Risk: reward ratio: 1: 3

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