Bitcoin and cryptocurrency fans have a reason to celebrate. From a technical analyst perspective, the bottom has been confirmed. What happens in the next few days becomes highly important for bitcoin and the cryptocurrency space.
Luna 2.0 has been the talk of the crypto space in recent weeks. Well, news today states that Luna2 surges over 40% after listing on Binance. After a shaky launch, things are stabilizing…for now. This could be a sign that things in this space are about to reverse. Just because I know people will be interested in Luna2, here are some facts to keep in mind:
- The token was launched on a new blockchain dubbed Terra 2 following the de-peg of algorithmic stablecoin TerraUSD (UST).
- Investors that held UST or Luna before the depeg, as well as those who purchased either asset following the depeg, were airdropped the new token with varying levels of distribution.
- The old Luna token, which is trading at $0.0002, has been re-branded Luna Classic (LUNC). The new token was part of a revival plan for Terra.
- The revival plan, although passed by Terra’s network validators, was pushed live even as results from a preliminary online poll on a hard fork plan found minimal backing among community members.
If you want to understand the sentiment in cryptocurrency, just do a Google search for “bitcoin”. I just did, and this is the first time I have seen negative articles being dominant. Only one article title points to a positive picture. As a contrarian, this kind of thing doesn’t go unnoticed.
Yesterday, bitcoin surged over 7% (was up over 8% at one time), but more importantly, took out a key level that I have been watching. The chart of bitcoin can teach aspiring technical analysts two important lessons.
The first lesson is that the weekly timeframe is super important. Okay I lied about two lessons, let’s say three lessons. The weekly timeframe thing just came to mind, but I do think it is worth mentioning. Remember, the higher the timeframe the stronger the signal. What happens on the weekly and daily chart matters more than what happens intraday, say on a 1 minute or 5 minute chart.
Okay, now the first real lesson is a simple one and fundamental to technical analysis. Pay attention to support levels, or price floor. Especially when price tests it on the higher timeframes. On the weekly chart, many were watching support at the 28,000 level. If bitcoin confirmed a weekly close below this, we would take out a support level which has held since January 2021. Just by looking at the chart, you can see the multiple times bitcoin bounced from or near this support.
Price action on the week of May 9th 2022 had a lot of bitcoin bulls nervous. During that week, the price did drop below 28,000. However the weekly candle close is what actually confirms the breakdown. What happened? Buyers jumped in and forced the weekly candle to close above 28,000 nullifying and breakdown. As long as bitcoin price remains above 28,000 on the weekly chart, there is a strong chance we continue higher.
The final lesson is also very important. It is very simple, but when you apply psychology and think like a trader, it becomes super powerful. The simple lesson regards ranges. What is a range? When the price of an asset begins to range between two price levels creating a rectangle like pattern. Price just bounces between the bottom and upper limits of this range and traders just wait for the breakout.
When you apply trader psychology to this we can say that a range signals exhaustion or a pause. After a downtrend (or an uptrend) a range develops when we see signs of exhaustion. In the case of bitcoin, we have had a strong downtrend taking us to major support at $28,000. Then, we have ranged for 20 trading days. To me, this was a sign that the selling pressure was exhausted. The bulls were slowly taking back. The longer the range, the more likely a reversal is to take place.
But as with all technical patterns, we need a trigger. To trigger a range breakout, we need to see the price close above the range. Bitcoin broke its range with the breakout on May 30th 2022. We closed above the upper limits of the 20 day range with a strong green body candle.
Now it is all about the momentum. The follow through candle on May 31st 2022 isn’t the best. Bulls would have preferred a green candle. Now, we are back retesting the breakout zone. We must see buyers jump in at $31,300. If we end up closing below this level, then the breakout will be nullified. We would have a fakeout or a false breakout. This would be bearish and likely means Bitcoin takes out $28,000 and heads lower.
So what next from here? If bitcoin does sustain momentum, I am targeting and watching the resistance at $35,000.
Another thing is in the past I have mentioned how bitcoin acts as a risk on asset. What this means is that money flows into riskier assets when fear and uncertainty diminish. Stocks are a great example of a risk on asset. This is why in previous posts, I have said that bitcoin moves with stocks. The S&P 500 is retesting a major zone which will make or break this bounce. A resistance zone which must be taken out in order to say the downtrend is over. The US Dollar is doing the same thing. If the dollar breaks out and the S&P 500 reverse, this would likely mean the bitcoin break is a fakeout.