Overall, Bitcoin prices are at a very interesting juncture and people may memorize the "Bitcoin September 2011" in history.
As expected in the last technical analysis, bitcoin prices did not hold the 5.74 $ level. Bitcoin prices fell another -30% to 4.18 $.
Looking ahead, the stabilization around the 4 $ range in recent days, plus the bullish divergences of key indicators point to a strong possibility of a rally.
chart: see
http://blog.bitcoinwatch.com Technical Analysis
We focus today on the big picture, the long term view.
There is a lot of chatter about the "BITCOIN BUBBLE", but in reality there is no bubble in bitcoins. Definitely not yet. Why is the decline from June no bubble?
1) The bitcoin price decline as evident in the attached logarithmic bitcoin chart looks like a standard correction: The 1 year rally has been much steeper than the 3 months correction. The logarithmic chart is the right way to visualize prices because prices rose exponentially in a very short period of time.
2) The volumes in turnover (not shown here) of the rally is much stronger than the volume of the past 3 months correction.
3) Pessimism has been and still is very strong, as evidenced by bitcoin investor sentiment poll data and the "doom & gloom" comments in the bitcoin forum. We have been using this sentiment very successfully as contrary indicator: When too many people are bearish, they are not invested and hope for lower prices. As prices may never get lower, they need to chase the rally in some point and the rally gains momentum.
4) Key indicators such as RSI and MACD show bullish divergences (see bitcoin chart)
5) Bitcoin prices have respected the key long term red uptrend line and tested successfully. This uptrend line is very strong support. And even another decline into the 3-4 $ area is still a possibility which would not invalidate the longterm uptrend as we can draw the uptrend line also a bit different (see orange line).
6) Bitcoin prices are on the verge of a breakout above the green downtrend line, which could initiate a strong rally.
Only a high volume, sustained break below 3 $ will make us turn long term bearish bitcoins. Otherwise, there is upside potential to new all time highs, into the 50 - 100 $ area. At the same time, one has to be patient, as the rise to those levels will not be a "straight line".
As always, we update the short term picture closely in the subscriber section of
http://www.bitcoinbullbear.com 
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