Jun 06, 2022
3 mins read
Many people are pointing out that Bitcoin closed a green candle above the 28.5K and 29.7K supports on the weekly chart and saying this is a bullish signal, but even we could have some kind of "relief rally" (mostly based on US Stocks performance), BTC is not reversing the downtrend and we're not in a bullish market yet. Let me explain this a bit:
Yes, Bitcoin closed in fact a green candle above the July 2021 low (29.7K) and the 78% Fib. Retracement (28.5K) traced from October 2020 to the all-time high on the weekly chart. The problem is this is not a confirmed breakout yet, as we have only 2 green candles above that level.
Wait, how can't it be a confirmed breakout if we have 2 weekly candles above the support? Well, for start, we're talking about the weekly chart here, not the daily one. In the same way you need at least 5-7 candles above a resistance in the daily chart to confirm that it has been turned into support, you can't just say "oh, this a breakout" on the weekly chart with just 2 candles of price action in a downtrend that has now 30 weeks from the top and 11 weeks from the last "relief rally".
If you do so, you'll be using just 6% of the data (if you take the 30 weeks period since the downtrend started) or 18% of the data to say "oh yes, this a breakout" and you can easily see how this could be hurried on.
Besides that, even if it was a breakout, a breakout is not a trend reversal. See that yellow line going down? That's the trend, and BTC hasn't broken the downtrend yet. There are also other indicators you can use to confirm if this is actually what some people are saying or just another "dead cat bounce". For example, this is the Bitcoin's weekly OBV, representing volume, and it's mainly used to track institutional investors:
You can see how the OBV is also in a downtrend and it has been in a strong decline since March 2022. It seems like it has reached a potential bottom around the last days of May, but it's still in a downtrend, and most important, still under the 50% level traced from October 2020 low. The OBV line in fact has gone flat in the last week, so it's not yet in a clear uptrend that could take the OBV above the 50% level and actually confirm a bullish continuation.
Is not only the OBV, we can take a closer look at other indicators to confirm if this is actually already bullish or not, like the RSI or the Stochastic, which both indicate momentum:
Do you see how both Stochastic and RSI are below their 50% levels? That's not bullish, that's still bearish. I added 3 supertrend indicators with different settings here for further confirmation, and you can see they're all still bearish and flat, with no signs of a reversal.
Still not convinced? Ok, this is the Bitcoin's Weekly MACD:
In the chart I pointed out not only that the MACD is still bearish, but most important, that the last time BTC had a "bullish" MACD cross was in fact a trap and the downtrend continued. To give you more perspective, this is what people are calling "bullish" right now if you zoom out:
It's pretty clear that calling these small, tiny signals "bullish" could be an error, even more so, since it would not be the first time that it's just another trap. So before you get too bullish with tons of tweets and videos saying the bull market is back, try to remember:
A green candle is not a trend reversal
A green candle does not mean the bull market is back
A green candle does not mean you have to buy
It's only in the confluence between multiple indicators where you have confirmation, and that's not happening yet.
If you're using the daily chart instead of the weekly, make sure you add On Balance Volume to your indicators to track if the volume is going up with a potential rally or not. If you see the price going up but volume not, run.
I hope you have a great Monday and see you in the next update.