Bitcoin’s been on a tear lately.
The king of cryptocurrencies has recently broken above $40,000. That’s a major milestone.
The last time bitcoin traded at $40,000 was in May 2022. Everyone wants to know what’s going to happen next.
I’m not going to mince my words. Bitcoin is going to break to new all-time highs. According to my technical analysis, it’s because of a recent development in bitcoin’s price chart.
On November 6, Market Minute readers were shown a version of this chart:
There are two important things going on here.
First, bitcoin was able to trade above three key moving averages by mid-October.
Bitcoin’s Trend Is Up
Breaking above the 20-, 50-, and 200-period moving averages tells us that bitcoin’s short, intermediate, and long-term trend is up.
But to really get some momentum going, bitcoin had to clear its trend channel (the blue parallel lines).
Breaking out of that trend channel allows bitcoin to achieve what I call “escape velocity.” In other words, to get some real momentum going.
And that’s exactly what happened next. Check out this updated price chart of bitcoin below:
As you can see, we’ve clearly broken out of that channel. And once we did, prices accelerated sharply higher.
But it’s not all clear skies ahead. While bitcoin will eventually break to new all-time highs, there will be a few speedbumps along the way.
Notice how far away bitcoin is from those three key moving averages. That’s a sign that momentum has reached a bullish extreme.
A market’s price movements are a lot like an elastic band. You can only stretch an elastic band so far before it has to snap back.
Given that bitcoin has shot up nearly 60% since the start of October, the odds are high the band is near its breaking point.
We likely need to see prices “snap back” before bitcoin can run higher. In trader speak, this is known as “reversion to the mean.”
A likely “snap back” target would be the top of the broken trend channel. This target happens to coincide with the daily timeframe’s 20-period moving average (the short-term trend indicator).
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What This Means for You
That means a possible pullback to around $38,000 or so.
How you use this information depends on the kind of trader or investor you are.
If you’re in bitcoin for the long haul, then such a pullback won’t faze you. You might even want to use it as an opportunity to buy the dip.
But a shorter-term trader might want to consider taking profits here and reloading once the pullback is finished.
Happy trading,
Imre Gams