In my last column on May 24, I wrote that Bitcoin was attempting to stabilize after being cut in half from April’s $64,800 high. That high was an important intermediate-term barrier. Why? Because each new high was a smaller percentage higher than the prior high, signaling weakening momentum.
For that reason, I advised my clients in April to place a closing stop-loss order on Bitcoin at $51,000. In my May 24 column, I said that a break below the $50,000 support level would lead to a $30,000-$50,000 trading range.
Fast-forward to today. The weekly chart illustrates that after sinking more than 50% into the $30,000 support area, Bitcoin formed what I call a “1-2-3” bottom (three dives into support accompanied by waning momentum to the downside). A positive reversal (a lower low than the prior week and a higher close for the week) launched the recent rally.
Notice that Bitcoin is beginning to bump into resistance from a rounding top in the $50,000 area. Bitcoin’s challenge will be to hurdle this strong resistance area. But if it can’t overcome that barrier in the next few weeks, then we would expect a pullback to the $42,000-$40,000 area. Holding at or above $40,000 would position Bitcoin to “refuel” and be in a stronger position to challenge the $50,000 barrier zone.
A daily closing chart shown next illustrates in greater detail the rounding top and $50,000 resistance barrier. The rally off $30,000 support is nearing a $50,000 trendline resistance—just as momentum is overbought. That’s another reason why a pause/pullback is likely to begin by next week.
Longer term, if Bitcoin could consolidate successfully as its overbought momentum gets worked off, a new cyclical advance could lead it to new highs.
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