Bitcoin: Bullish Reversal Signals Are Forming And $19,000 Is Doable

Summary

• Bitcoin has corrected by 46% of the huge move from November to December.
• There are a few early signals that a reversal may be in the works.
• In this article, we'll look at those bullish signals and the path that Bitcoin might take on its way to $19,000 again.

In my last two articles, we looked into the fundamental backdrop that's impacting blockchain technology, Bitcoin, and cryptocurrencies in general.

In this article is a price analysis to determine where Bitcoin stands in relation to the overall medium-to-long-term trend. In my opinion, there are a few early bullish signals flashing that indicate a potential push higher back to $19,000.

Any rise will bode well for those investing in the Bitcoin Investment Trust (OTCQX:GBTC) or following the ongoing developments if the first Bitcoin ETF through the Winklevoss Bitcoin Trust ETF (COIN).

Bitcoin Price Action from November:

After rising 250%, BTC corrected with a 46% fall that would normally be considered backbreaking for any other instrument.

Bitcoin bounced higher by 36% off the most recent bottom on December 22nd.

It has since pulled back somewhat to current levels.

Does the 46% correction mean the end of the rally?

The daily chart below shows just how important Fibonacci levels are to traders for determining entries and exits. A Fib. level is merely a correction measured in percentage terms.

Two of the key Fib. levels are the 50% and the 61.8% levels. Popular entry strategies include going long at a key Fib. level while simultaneously placing a stop-loss order below the next Fib. level.

With the bounce off the 61.8% level (circled in green below), Bitcoin rallied hard after being pushed down to its lows on December 22nd.

The rally formed the wick of the candle circled and may be a sign of a reversal. Why? Sellers drove BTC down in December, but buyers looking to enter long positions jumped at the opportunity to get in at the key 61.8% level. The result was BTC bounced, as buyers took control of the market thus forming the wick.

If Bitcoin creates another higher high and higher low in the coming days, the December 22nd candle might just be the reversal sign the bulls have been looking for. More on the key levels to watch for in a bit.

Two Other Bullish Signals:

Below is the same chart, but I drew trend lines and highlighted the consolidation that Bitcoin was mired in during the holidays.

The green trend line connects the highs of the downtrend in December.

On January 2nd, Bitcoin broke through the green trend line potentially breaking the back of the correction. This is a bullish signal. It signals that BTC is now putting in a higher high as opposed to lower highs during the correction.

• On the surface, the January break might not appear to be a big move given how fast and hard Bitcoin rallied in 2017, but traders follow downtrends and use trend line breaks as a signal of whether the trend is holding or ending.

The second bullish signal is how Bitcoin broke through the consolidation zone (blue region). Typically, not always, a break of a consolidation higher can lead to an extended move higher.

Why is a consolidation break important?

The sideways trading in December represents indecision by the market and when that indecision is broken, it's a signal that the market has concluded (in this case) that Bitcoin should be higher.

If you follow my articles on SeekingAlpha.com, you know consolidation and trend line breaks are part of my analysis along with the fundamental drivers in the markets. I've highlighted this pattern in many articles over the past year or so with crude oil, Bank of America (BAC), and the S&P 500 to name a few.

It's important to remember that the fundamentals drive the price action, not lines on a chart. And Bitcoin is no exception. However, the key levels that I've highlighted here are where traders might have buy and sell orders. If these key levels are broken and orders triggered because of the fundamentals, explosive moves in the direction of the break often occur.

The Next Bullish Signals To Watch:

• On a break higher above $17,500, $19,700 comes into play as the market will likely try push to the prior highs.
• The consolidation zone is roughly $3500 in width. If Bitcoin breaks higher again above $17,500, it may travel the length of the consolidation or $3500 to $19,700. This trading behavior is very common but not guaranteed.
• On a break above $19,700 and ideally a weekly close above the level, $21,797 and $23,000 are doable as top-level targets as shown on the chart.

If the fundamentals turn negative:

• On the downside, watch for a break of $12,700 (the deep red rectangle) since it would likely lead to an extended pullback to $11,500 and possibly to the bottom of the bearish yellow zone or $10,000.
• Expect price action in the yellow zone to be very choppy. As a result, your trades are more likely to get stopped out in this area.
• Break-even points are likely at $12,700 for traders who went long in January. Those traders would not likely allow their positions to go into the red below $12,700. Look for stop-loss orders to kick in at or around this area.

Overall, I believe the fundamentals have shifted in favor of virtual currencies as blockchain technology has garnered more investment and favor lately. As a result, Bitcoin and others should benefit. However, the long-term value of BTC is still to be determined as the market continues to determine how cryptos fit within the financial system.

In the coming days, I'll have more analysis or news as it develops on other cryptocurrencies. Please become an "email alert" follower to have my next article and charts emailed to you once they're published (see below).

For Crypto Investors: If you'd like chart analysis for other cryptos or alt-coins, (I'll have an article in the coming days on Ethereum), please leave a comment below for the others you'd like analyzed. Thanks.

Good luck out there.

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Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.