Here's the reason why:
http://www.cryptocoinsnews.com/news/bitcoin-technical-analysis-price-reversal-due/2014/05/27Bitcoin Technical Analysis reveals that the uptrend is about to reverse from current levels. An exuberant breakout has fizzled out and lost critical momentum. Last week’s article warned of a bull trap in the making. If the ensuing downturn is merely a correction, advance may return with a vengeance, but if large market players again fail to participate, matters look different.
Takeaway
Traders and investors should brace themselves for a strong price reversal. The advance is losing momentum. Indicators signal overbought conditions and declining volume speaks of a lack of wider participation. Price will reverse from current levels around $600 and may retrace at least 50% of the advance to $520. The notion of complete retracement and resumption of the decline remains alive.
Comparison with Previous Advance
The Bitstamp Daily chart shows price action since March 2012. The powerful advance that began in October is supported by comparable behavior of the momentum indicator, MACD, at the bottom of the chart. On each successive higher high indicated by MACD, price can be seen making an equivalent higher high. This synchronized action between price and indicator clears the way for advance and the outcome is evident in the November all time high.
On the right of the chart, the current advance can be seen making a local high, but it is still a lower high in comparison to some of the peaks formed during the decline. However, according to the momentum indicator, price has risen to the equivalent of a MACD peak in January – but price is nowhere near this peak on the actual chart. This phenomenon is called “reverse divergence” (or “hidden divergence“) and is annotated by the red lines connecting the apparent higher highs.
As is ordinarily the case, trade volume has steadily declined during the course of the downtrend from the November high. What is not “ordinary” is the fact that a supposed “breakout” has advanced on record low volume. Notice how the first surge of the advance in October 2012 was accompanied by higher volume than the current advance – and that during a time when Bitcoin adoption and participation was at lower levels than the penetration achieved today.
Lack of volume during (and following) a breakout implies that participation in the move is not wide. Either a few players with large holdings had moved the market, or many smaller pockets had thrown their holdings at the exchanges while the large players sat on their hands. You don’t need a degree in cryptography to see which scenario had been the case.
Bitstamp Targets
Looking at the price charts across all exchanges, Bitstamp and BTC-e, strangely, exhibit unclear charts. BTCChina and Bitfinex charts more clearly show price in an ending diagonal at the present stage of trend.
As the 4 hourly chart below illustrates, Bitcoin price is approaching yet another descending trendline (red) – and this one may prove to be the advance’s nemesis. Regular Divergence is indicated by the two pink lines on the chart and the accompanying MACD indicator (bottom). Although regular divergence can compound multiple times, the occurrence of this divergence in tandem with a reverse divergence signal on the daily chart is an alarm bell.
Readers will notice that the Elliott Wave count has the current advance as price going “up in a correction“. Should this turn out to be the case, then the same downside targets apply as stated in previous articles.
Should the advance prove to be real – and having started with a three wave structure (label A from $340) for good reason, then we can expect a decline to at least 50% of the recent wave up. The primary target is at $520. That would conceivably print wave 2 (or part thereof) before further advance. However, a market bottom in wave E at $270 remains the preferred target.
