Bitcoin (BTC) bulls are already celebrating after the massive short squeeze that saw weeks of bearish positions liquidated in a matter of minutes! Even though retail bulls have suddenly appeared out of nowhere to claim victory and take credit for the recent spike in BTC/USD, the reality is that it had more to do with stubborn bearish positions being liquidated than genuine bullish interest returning back to the market. That being said, the recent spike that saw BTC/USD close above its 21 Day EMA has once again sparked a new wave of bullish euphoria in the market, but is it too early for the bulls to claim victory yet? If we look at the daily chart for BTC/USD, we can see that the price has just run into a strong trend line resistance and will now have to retrace a bit before it can continue up or down.
This retracement could lead to some interesting events. If we look just at the daily chart and take this symmetrical triangle into account, it is not hard to see that a lot of bears would find this the ideal point to enter further bearish entries. They would have reason to believe that the price is supposed to go down hard because it did not succeed in breaking above the trend line resistance. Even if we just anticipate a retracement to the 21 Day EMA within the symmetrical triangle, it would still be quite plausible to enter a bearish position at this point from a risk/reward standpoint. However, one of the dangers of technical analysis is that traders often forget that a chart can be interpreted in so many ways. Moreover, those interpretations show us possibilities not probabilities; you have to deduce the probabilities yourself.
Let us now look at another daily chart for BTC/USD from a different perspective. This time, instead of taking the symmetrical triangle into account, we are considering the Adam and Eve pattern on the daily chart which is about to come to fruition. The Adam and Eve double bottom pattern has historically been a strong indicator of bullish action to come. The Adam and Eve pattern seen on the daily chart further implies that the probability of the symmetrical triangle breaking to the upside is a lot higher than it breaking to the downside. It also supports our view that the price is likely to retrace significantly before Bitcoin (BTC) can resume its rally to the upside.
This is the post Chinese New Year rally that we have been talking about in our previous analyses. The spike that we saw in BTC/USD in the past 24 hours was just a green light for the bulls to stay prepared and a red light for the bears to be very cautious. It pushed BTC/USD out of the sweet spot of the bears and gave traders a reason to turn bullish again. So, is it too early for the bulls to celebrate victory yet? We have been talking about a retest of the previous market structure for a long time now. Now that BTC/USD has closed above the 21 Day EMA and formed an Adam and Eve double bottom, a rally towards $6,000 can be expected. Until the price faces a strong rejection at the previous market structure around $6,000, the bulls have every reason to claim victory and remain bullish.