Investors who believed that sellers were going to take their feet in the carpet following the nice reaction of Bitcoin (BTC) to the Fed’s announcements on tapering (slowing down in asset purchases) and rate hike forecasts, look grim. The very next day, the king of cryptos failed in his quest to free himself from $ 50,000 to the point of returning to his week’s lows around $ 46,000. This phenomenon, which caught hungry buyers off guard, is called a bull trap. This bull trap has participated in the bearish dynamics of the king of cryptos since his last ATH on November 10. The idea of a complicated end of the year 2021 seems to be looming. Technical analyzes in weekly and daily units do not show encouraging signs. But before tackling the subject, let’s do an educational reminder about what a bull trap is.
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What is a bull trap?
Since Journal du Coin’s readership is rich in skills, but with variable geometry, I will familiarize you with the bull trap (bullish trap), a theme commonly used in financial markets.
A bull trap is actually a trompe-l’oeil hike during which buyers convinced they are getting a good deal believe that the price of the underlying will continue to rise to reverse the underlying downtrend. But quickly, the rebound is in reality a simple respite before another fall towards the precipice to take buyers on the wrong foot.
The graphical evolution of BTC in units 1 hour before and after the FED meeting reflects this behavioral phenomenon. After a spectacular rise (starting point marked by an orange dot), a double top formed when prices hit the resistance of $ 49,500 twice after a first fulcrum on the neck line of the $ 48,500.
The validation of the figure chartiste of turnaround results in the exit of the downward neck line. The theoretical objective which corresponds to the difference between the resistance and the neck line, was unfortunately achieved beyond expectations.
Soon the 41,000 dollars in the coming weeks?
If the week were to end on Friday evening, the candle of this week would definitely spell the end of the bull run which started on July 21. To make matters worse, support around 48,000-49,000 is seriously threatened. This coincides with the passage of the Chikou Span, the curve which replicates the price movements of the underlying with an anteriority of 26 sessions, below this level. We will have to wait until next week to validate or not this potential bearish signal.
The complementarity of Ichimoku with the graphical analysis of prices makes it impossible to say that we have entered a strong downtrend. In order for the sellers to definitively retain control despite the break in the ascending line of the last bull run, it would be necessary that BTC prices and the Chikou Span are below the Kumo (Ichimoku cloud). As you can see from the graph above, there is no – again – the fire at the lake if that can console you.
However, if the downtrend were to continue, BTC prices in weekly units would incorporate Kumo and fall back to the $ 41,000 support. Hoping for a better fate than the 53,000 dollars, it is a critical level not to be crossed on the downside.
Bitcoin and Chikou Span prices well below Kumo in daily units. The 200-day moving average threatened.
In weekly units, not everything is to be thrown away. In daily units, the last hopes which rested on the last meeting of the FED, only made matters worse. La Tenkan, the average price of high and low points over the last 9 sessions, pushed Bitcoin prices back to their weekly lows.
And as one bad news leads to another, the moving average at 200 is currently under strain. On the one hand, the prices of BTC have crossed it on the downside. Which does not bode well if the days to come follow and look the same in this direction. On the other hand, the Chikou Span does the same in addition to breaking an old downtrend line.
To shake up this downward dynamic in daily units, in the short term, we should cross the recent downtrend line since the ATH of November 10. Even if this step were taken successfully, the game is far from won as the prices remain far from Kumo.
In summary, the last meeting was not the hoped-for catalyst to change Bitcoin’s bad patch of recent weeks. That being said, his performance in 2021 remains honorable although the end of the year seems to be ending painfully. On the other hand, investors have been spoiled for all risky asset classes, both stocks and cryptocurrencies. Profit-taking seemed legitimate to me before attacking a year 2022 which would risk being more volatile.
Indeed, central banks will tighten the screw as evidenced by the latest announcements from the Fed on tapering which expires at the end of March 2022 and the three potential rate hikes that will follow. This would mean that the reduction in liquidity could penalize stocks and cryptocurrencies in the first place. But as the devil lurks in the details, the accommodative monetary policy will last into the first quarter of 2022, as rates will not budge until the end of tapering.
It is at the start of the second quarter of 2022 that we could witness periods of tension. In the absence of central bank support, vulnerability to lower risk could lead to stress for investors. However, the speed of the rise in rates relative to inflation will be a turning point. If the Fed were to be less aggressive, a smoothly piloted rate hike cycle (0.25% per increase) would historically be favorable for risky classes.
Like what bad news can sometimes hide good news.
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