Market Update 11/30/18: Has Bitcoin Found a Bottom or is a Bull Trap Forming?

After bouncing off of the support level at $3,500, Bitcoin was rejected by the resistance level at $4,400. Over the past week or two, Bitcoin exhibited bear flag after bear flag. This typically happens when there is a high volume sell off followed by a low volume rally. The lack of volume indicates weak buying momentum. However, Bitcoin’s last bear flag was followed by a high volume rally. In fact, this week Bitcoin saw its largest single day price increase since April. It is unquestionable that the volatility is back in the crypto market.

The image above is an example of a potential market bottom. In order for a bottom to occur, it usually will be followed with a large volume rally. It is essential that the rally is created with high volume because high volume indicates buying momentum. Fortunately, Bitcoin’s reaction rally earlier in the week was created with significant volume. After Bitcoin declined heavily, it appears that this failed rally may have been a bull trap that will possibly lead to additional bear flags.

Although large volume buying is a bullish indicator, the bulls failing to break the resistance level at $4,400 is very unsettling for any longs in the market. In addition, the bulls must still break strong resistance levels in order for a potential market bottom to be in. The strongest and most critical resistance level is at $6,000, which is now the strongest resistance level in Bitcoin’s history (per technical analysis). Also, Bitcoin would have to increase 35% just to reach the support level at $6,000.

Hypothetically, if the resistance at $6,000 was broken with high volume it would be a very strong signal for the bulls, at least in the short run. For now, it does not seem likely that this price action could occur any time soon.

In a bear market, it is better to trade with a bearish bias. If support levels at $4,000 and $3,500 break and we continue to remain in a range with low buying volume, then there is likely to be more potential to the downside. For now, the trend is bearish and a larger move is about to come. If support is broken at $3,500, the price of bitcoin may drop straight to 3,000. (Another historic support level, this would be a 14% drop). Currently, we are in an equilibrium chop and we are in ‘waiting mode’ to see if Bitcoin will make lower lows. If Bitcoin continues to get rejected at the resistance levels of $4,200 and $4,600 the current price action is simply a continuation of the bear trend.

Up until today, the case for the bulls was decent. If Bitcoin could have increased through the resistance level at 4,600, there would be a good chance Bitcoin would have increased to the next resistance level at $5,200 – $5,400. After being rejected at $4,400, it seems more likely that Bitcoin will simply continue its bear trend with high volume sell offs.

For Ethereum, it looked as if a potential bull flag was forming to retest the $140 level. Now that the market has experienced a failed rally it looks less likely that Ethereum will maintain its buying momentum. In order for Ethereum to remain bullish it must hold the support level at $110. If not, Ethereum will likely retest support levels at $100.

Above all, volatility is back in the cryptocurrency market and Bitcoin Google search trends are increasing. Although some are calling for a potential bottom at $3,500, Bitcoin may continue its downward trend before significant buying momentum is present. Ultimately, this week has been incredibly opportunistic as the market will likely continue with another large move.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers on the recent state of the cryptocurrency market. The author of the article trades cryptocurrency.