Bitcoin traders and enthusiasts are riding the wave after the incredible $ 9,000 to $ 42,000 rally throughout Q4: 2020. It was certainly an incredible run – more than triple in value in less than three months. Now we find ourselves in the early correction phase of 2021 that will end in either another Breakout / Rally attempt or an Excessive (Blowing) Stage. This article highlights both possible outcomes because at present it is difficult to determine one high probability outcome.
Before I continue, I urge readers to review our How to Indicate the End of an Excessive Period article from November 27, 2020. You can re-read it here. This is an excellent primer for the content of this current research article.
What will Bitcoin Breakout look like?
Let’s take a look at what a breakout / Rally technical settlement would look like in Bitcoin in the near future. Looking at the chart below, the price must hold above critical support near $ 27,800 as any new low would amount to a continuation of Bearish’s decline. Therefore, any revamped rally attempt would likely start from levels near $ 28k (or just below this level).
Using Fibonacci Price Extension, we can see the $ 46,280 (0.618) and the $ 56,190 (1.0) Fibonacci Extension levels as key potential upside price targets if a cut-out / rally resumes. We measure the most recent bottom, in late November, to the current high price level, then align the bottom of the Fibonacci price extension with the current price lows (nearly $ 30,260). This allows us to see potential future price target levels if this rally / uptrend continues.
Again, it is vital that the support level near $ 27,800 does not hold and price lows do not break this level. Breaking this level of support would amount to a “new lower low” in Fibonacci Price Theory – which suggests a continuing decline.
What would a Bitcoin analysis look like
The other aspect of this recent climax is that it may be setting up as Excessive Period (blow-off), as we can see the recent # 1 (extreme rally) and # 2 (flag-side) settlement in price. The completed Excess Period pattern consists of five whole processes:
- The extreme upside price rally
- The TOP, followed by a moderate disadvantage price trend that establishes the FLAG
- Analysis of the FLAG trend, which then targets a broader level of support
- An analysis of that level of support, which then targets the ultimate base level / momentum
- Once the bottom / bottom is pretty much established, then new momentum / bottom begins and the trend is usually another rally attempt.
Obviously, when you look at the Bitcoin to USD chart (below), it’s fairly easy to identify Excess Period’s # 1 and # 2 setup. The next question is whether prices will skyrocket and try to move below the recent low support level of $ 27,800 or will it continue above this level, triggering another rally attempt. If price breaks below the $ 27,800 support level (near recent lows on January 11, 2021), then we need to be very wary of the broader process of Extra Step continuing and ongoing analysis leading to lower price trends . If the $ 27,800 support level holds, as we suggested in the Breakout / Rally example above, then there is a strong chance that $ 42k to $ 56k could be the next upside targets.
I understand that readers and traders want more clarity about the direction Bitcoin will go, but ultimately, we need a price to complete the next step of this process. It all depends on the current $ 27,800 level of support. As long as that level of support holds, then there is a very strong possibility that another upside down price rally will start at some point in the future. If it is broken and the Flag Analysis continues, then the Excess Period appears to have moved to Stage # 3 and will likely continue to develop.
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Chief Market Strategist