Bitcoin Breaks to an All-Time High; Should We Uncork the Champagne?
Bitcoin broke out to a new all-time high last week, so it seemed to me that it would be a good time to come out with a bullish article. After all, Chart 1 shows that a solid breakout came from a one-year reverse head-and-shoulders pattern, which was also accompanied by an acceptable (but certainly not outstanding) expansion in volume. On closer examination, though, several long-term technical discrepancies were apparent and I chickened out. I am glad I did, because price action this week has me questioning whether Bitcoin is about to take a turn for the worse.
It's important to remember that no damage whatsoever has yet been done to the basic uptrend. Consequently, it's far too early to declare a bear market, even though AI chatbots point out the high current level of excess institutionalized speculation. I think of it in terms of dominoes, the first of which may have fallen on Monday. Until long-term technical benchmarks, such as a negative 12-month MA crossover or some key long-term up trendlines, are breached, it makes sense to remain bullish on the main trend.
The first domino can be seen in Chart 2, which features daily candles. It is taking the form of a bearish shooting star which developed on the day the all-time high. These candle patterns arise after a short-term run-up in which prices are pushed to new intraday highs. However, the open and close are barely able to form above the session's low.
These formations are essentially exhaustion phenomena, since buyers run out of steam and are unable to support the price at these higher levels. Like most candle patterns, shooting stars are expected to have a negative effect over the short-term, say around 5-10 bars. Given these are daily bars, that implies a duration of 5-10 days. They certainly do not represent a primary bear market signal; however, the position of this one in the charts does open up the question as to whether it could do sufficient damage to invalidate Chart 1's inverse head-and-shoulders breakout. In that respect, the potential violation of the 2025 red up trendline in Chart 1 could be a critical second domino. For the record, it is currently around $110,000.
Since market prices are determined by the collective attitudes of market participants, and people can and do change their minds, a rally above the shooting star intraday high in the next few days would cancel it as a bearish factor and actually enhance the bullish case.
Chart 3, which compares Bitcoin to its 26-week ROC, has three important takeaways. First, the ROC has diverged multiple times, with new all-time highs in Bitcoin. That in and of itself indicates major vulnerability. Second, and arguably more important, is that the ROC was barely able to rally above zero at last week's all-time high. When confirmed, such low momentum divergences are usually followed by an above-average decline. As a point of reference, a similar discrepancy appeared in the US stock market just prior to the Mach/April decline.
The third point is that none of these discrepancies are relevant unless confirmed by a price trend reversal. In this instance, the obvious break point is the red up trendline, which is currently around $95,000 basis Friday close.
One of the factors that caused me to temper my optimism last week can be seen in Chart 4. The green shadings indicate when the PPO is above its MA. Most of the time, the price rose, the 2019-2020 period representing an exception. However, all the important declines took place when the PPO was below its average. Unfortunately, that's where it is now. The chart also shows that the critical point for a major sell signal, the final domino, would occur with a break below the secular red up trendline and the extended breakout line at around $72,000.
One More Thing
According to the AI Bot Perplexity, "of the widely followed altcoins, only Hyperliquid (HYPE) is confirmed to have hit a new all-time high alongside Bitcoin's rally." I'd say that's pretty bad breadth!
Good luck and good charting,
Martin J. Pring
The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Groupof Walnut Creek or its affiliates.
