After an incredible upside price rally that took place throughout the end of 2020, the recent 20% decline in Bitcoin prices, seemingly overnight on January 4th, may have come as a shock to many Bitcoin traders. The deep low price was reached in early trading overnight on very heavy volume – reaching levels near $27,734. Compared to the high price level reached just 27 hours earlier, near $34,800, this strong price decline represents a 20% sell off (over -$7040).
Bitcoin Daily Chart
If this is the start of a broader downtrend for Bitcoin, we’ll have to watch the MAGENTA trend level on this Daily Bitcoin chart below for an indication the upward support channel is breached. This may be a deep pullback in a stronger uptrend still. But the heavy volume and very deep decline suggest the upside parabolic price trend may have “popped” and Bitcoin may be setting up for a bigger change in trend in early 2021.
Overall, very clear support from the RED trend level on this chart would suggest that support near $21,000 may become the next target level. Traders can see the breakdown of the RSI indicator as well as the clear support channel represented by the MAGENTA trend level on this chart. We believe the MAGENTA trend level is a critical level if this upside price trend is going to continue.
Watching your Bitcoin investments collapse by -20% overnight must be a tough pill to swallow for many traders. What we find interesting about this move is that it appears to take place withing what we’ve been calling an “Excess Phase” peak. We’ve authored numerous articles over the past 60+ days suggesting the global markets have entered an “Excess Phase” (Blow-off top) type of formation related to our super-cycle and intermediate cycle research. Check out our recent research on How to Spot the End of an Excess Phase and Bitcoin – Is this the Peak?
If our researcher is correct, this deep downside rotation in Bitcoin will start an “Excess Phase” (Blow-off top) pattern – resulting in a steeper price decline lasting many months into the future. Eventually, price may settle back below $8500 before finding support again.
We will have to watch how this peak/rollover continues over the next few days and weeks. Excess Phase tops are fairly clear in terms of how they process. This first phase peak will settle into an upside Price Flag formation trend. When that Price Flag formation breaks, a bigger downtrend will push prices much lower – setting up a final support level, which will also be broken eventually.
If this downward trending continues in Bitcoin, this next price low will setup the Bullish Price Flag pattern of the Excess Phase. Pay attention to the setup and phases of these types of Excess Peaks. It is important that you learn to manage risks throughout these trends.
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I wish you all a healthy and profitable New Year!!
Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com
