Analytics provided by BBA

Bitcoin did see a slight pickup in volatility immediately following the Labor Day holiday in the US, although more recently price has once again fallen into a contracting range. We’ve seen this play out before, so at least we have an idea of where we are going.

Seeing as though there hasn’t been much in the way of noteworthy price action over the past week, we want to shift gears slightly in order to get a better idea of where we sit with regard to the near term cycle that is playing out. On that note, today we are showing our normal longer term chart to put into context just how stagnant the market is getting, and we also present an even more basic chart that focuses solely on volatility (or the lack thereof). Both of these charts will help us suss out the shorter term details while maintaining a prudent longer term view of the market.

To commence this week’s analysis, firstly, we want to view and analyze the 3-day chart below that we have been watching for some time. Notice that price has broken above the descending channel that has been intact since June, as well as the fact that price is now above the 38.2% Fibonacci retracement level (a bullish indication). Also, note how the 200-period SMA is still picking up steam to the upside while the A/D line steadies at elevated levels, and the price is still well above both the short and medium term uptrend lines.

Additionally, the momentum oscillators look healthy considering that Willy, RSI, and MACD have all recently broken above their respective centerlines, and it looks to us like we might have a decent fractal of the previous consolidation from earlier in the Spring and Summer working. This would signal a continuation of the sideways action for the time being, and likely for the next month or two, however, we need a bit more confirmation to make this call so we will wait until next week for more evidence. Finally, price is still well outside of the volume profile value area and in a huge notch, so we cannot rule out a spike retest of the low to mid $500’s prior to a resolution higher. Generally speaking, the 3-day chart is telling us to remain patient while the market continues to explore current levels, but it is also telling us to keep buying on larger dips as we remain in a longer term bull market consolidation.

Moving on to the previously mentioned volatility chart, we can see below just how squeezed the market is becoming. Despite more Bollinger Band contraction last month prior to the break above $600, currently they are contracting once again but this time off a smaller width. We can see this on the middle indicator at the bottom of the chart which shows a pattern of larger BB width expansions at the beginning of the correction, which then becomes smaller in magnitude as it progresses. This is typical of a bull market consolidation. Also, note how the Vix at the bottom of the chart is as low as it has been since late July, and how BB % has re-entered the blue range meaning price action is tight once again. All of these signals to us that the stagnation is likely to continue over the near term, however a violent breakout in one direction or the other is not that much far off.

Despite the fact that we remain bullish over the medium to long term, as previously mentioned we do think there could be some washout volatility prior to the final move out of this large $450 – $700 trading range so caution is still warranted at current levels. A quick spike down into the mid-$500’s prior to a move above $700 seems well within the range of possibility, and is actually how we are mapping the market for the time being. While September might not be all that action packed, October should bring some fireworks for the Bitcoin traders to play with.

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