Bitcoin: Landing Gear Engaged. Bottom Is Still In Progress

If you have tracked me at all since January, I had stated that if bitcoin (BTC-USD) is in a wave iv of the degree that I believed, support for this corrective wave, that started in January is in the $3000-$4700 zone. $4700 is an ideal landing spot for this wave iv as it is the .382 retrace of the third wave that began in July 2016.

Further, if you tracked my writing, I saw many setups that can bring us to that level, and likewise many bullish setups that could have taken us out of this long correction prematurely. All failed.

But here we are now with the landing gear dropped and the zone in sight.

We are not only close to this key level we are with a clear ABC pattern nearing completion, with the wave C as an ending diagonal that started with the February high. That diagonal has been a very slow drag from then until now, but we are close.

When an Elliott Wave practitioner looks for a bottom in a market there are many factors we look for. A bottom is never confirmed until breakout over old highs. But we watch for a progression through a set of events to test whether the bottom is bottom us.  While I enumerate those outcomes here in a post to my subscribers, we have the first two events looking likely in the next few weeks.

The first is a completed pattern, which can signal a bottom with all its corresponding fib levels and ranges. For example, we like to see a C wave extend to .764 to 1.382 of A. And, Wave A being equal to Wave C in log is ideal. Today the .764 of A is $4600.

The second is that price pulls into near proximity, and sometimes right on a fib level from the higher degree. For instance, if we are tracking a wave 2, we like to see it pull back from .382 to .618 of the preceding wave 1. And, if we are tracking a wave iv, it should pull back to .382 while not exceeding .5 of the preceding wave 3. Per above, in bitcoin this level is $4700.

The close proximity of $4700 and $4600 makes this zone important. However, if the market chooses to extend here $3570 is a very important candidate as it the level of log symmetry of A and C and is above the 50% level of A.

This describes the bloody details regarding one way that sentiment-driven markets follow a mathematical structure as defined with the Elliott Wave Theory. You can see these proportions repeated time and time again in all markets, whether stocks, bonds, or my favorite- cryptocurrencies.

Now questions at this time still remain. Mainly, will this level hold ultimately? I really don’t know the answer to that question. But more importantly the mathematical confluence into this area makes it key. And, due to my experience it is important enough to make a bet that perhaps we can see an end to this correction that has plagued us for eight months.

Note that I have on my chart two counts, red and white, showing how we may enter the landing site. One ends quickly with a final dive. But it has structural issues in that three is too short, making it the shortest wave, an Elliott Wave rule violation if 5 extends past $4900.

So, if this wave down is the final, I doubt it stops there at $4900 or $4600, but likely goes straight through to $3500 or below in what’s called a Y wave. I do not have that structure in my chart for simplicity, but I’ll be watching for it.

The other path is red where we get one more relief rally, a wave 4, leaving wave three as our longest wave, and leaving us patient for a lower bottom in a few weeks.

If this level holds, and we can finally work up to a real breakout, wave v targets $65,000+. We are a long way from concerning ourselves with those levels. That is just something to look forward to if this bear market can truly end.

The Capitulator’s Urge

A qualitative question that arises in these events is whether sentiment itself is bearish enough to bring a bottom. Are crowds dashing for the doors fast enough to leave only strong-handed borrowers in the market and enough cash on the sidelines to power the market higher later? 

I think we only have seen the beginning of this phenomenon.

We’re seeing signs of capitulation everywhere, as holders give in to the need to relieve their angst. One by one I’ve heard of whale groups folding and seen tweets with such phrases as “Cryptos are the biggest mistake of my life.”

I also see the signs of capitulation structurally in price. When watching the micro movements for my day trading, where I expected retraces, I saw very shallow to no retrace at all before price broke lower prematurely.

These are small signs of the exit doors swung wide open. But we will likely see more signs of pain in the coming days. The bottom is still a process and so more pain must come.

When the end does hit, it should be clear. In cryptocurrencies a big up is very strong after a break of $8500 will be the next sign that the bottom is in.

View chart illustrating the wave counts on BTCUSD.

Ryan Wilday is a cryptocurrency analyst at ElliottWaveTrader, where he hosts the Cryptocurrency Trading premium subscription service.