Leading into the London open, bitcoin broke through its local support level in a move that seems to be hinting toward a downward continuation:
Figure 1: BTC-USD, Daily Candles, Broken Local Support
So far, our daily candle has yet to close, but it is currently on schedule to close below local support. If we close below this current level, that will mark a new lower low for the first time in about a week and a half. Although that is bearish, the real strong support level lies just below and is outlined in red in the figure above. The $3,650 level has been a pivot point for months. We saw a test of that level a few days ago, but it was immediately rejected. However, now we are seeing a relatively widespread and high volume as we drift downward toward our support level.
In our previous analysis[1], we discussed the possibility of the symmetrical triangle experiencing a throwback prior to an upward breakout. However, the symmetrical triangle’s upper trendline has failed to provide any meaningful demand:
Figure 2: BTC-USD, Daily Candle, Symmetrical Triangle Failed Breakout
Consolidations that fail to continue post-breakout often lead to strong reversals. As traders buy the breakout of the triangle, they provide deep liquidity for short sellers. If the supply is high enough to overwhelm the demand, that leaves a tight pocket of bulls underwater. And, if you have an underwater long, the way you close it is to market sell it. If you have underwater longs that get stopped out, that adds additional selling pressure to the already overwhelming supply in the market.
We will have more information once the daily closes, but given the level of sideways consolidation over the last week, a downward breakout does not bode well on smaller
