Why Buying Bitcoin (BTC) At Current Levels Is A Recipe For Disaster

During the past few weeks, we have been consistently talking about an expected correction to the upside that would push the price above $4,000. That correction has finally occurred and BTC/USD is currently trading above $4,100. Before this rally, we expected the correction might push the price towards $4,500 but the manner in which this correction to the upside has taken place over the weekend have convinced us that this is it. We still do not rule out a rally towards the 200 day moving average or the 21 week moving average but we believe the risk/reward makes buying at current levels a recipe for disaster. Both the daily RSI and the Stochastic RSI have now topped out indicating that there is no significant room for further upside. The price has already faced a strong rejection and is expected to fall back inside the bearish pennant.

We have now two bearish scenarios that could play out. Before we discuss that, let me say that there is no bullish case unless we see a golden cross on the daily time frame. So, the probability of BTC/USD going down from here is a lot higher than it going up. The first bearish scenario that could play out is the bearish pennant. As we can see the price was falling aggressively around early December, 2018 but then it entered a pennant because it could not complete a correction to the downside in one go. The pennant helped cool things off and has now prepared Bitcoin (BTC) for another decline. Some might call it a symmetrical triangle; some may even call it a bullish pennant. However, in chart analysis when the price is falling before entering a pennant, we call it a bear pennant.

The second scenario that could play out is that we may see some temporary bullish impetus or a fake out that would result in a bear flag being formed. While the probability of that playing out is a lot lower than the bear pennant, we still think it is possible and investors should keep an eye out for any move to the upside. It is also important that investors take any move to the upside as an opportunity to sell and not buy because all the important indicators point to significant further downside to come. The least we could expect is a drop to $3,000 but I think we are going much lower than that.

If we look at the daily chart for BTCUSDShorts, we can see that the shorts have declined significantly after the recent death cross. We are only a day or two away from the shorts retesting the previous support and then we might see BTCUSDShorts rising again. The next time BTCUSDShorts rises; we would see a golden cross form which would end up making the bears even more confident. Therefore, this is the time to sell not buy and any attempt to accumulate at current levels will most likely prove to be a recipe for disaster in the months ahead.