The 161.8% Fibonacci retracement is critical in tracking Bitcoin's movement
Earlier this week, cryptocurrency leader Bitcoin (BTC) saw a surge in buzz-worthy headlines, as it took investors on one of its patented roller-coaster rides. On Tuesday, June 22, Bitcoin dropped below the $30,000 level early in the session, before turning positive later in the day to settle just below $33,000. That same day in its Morning Lineup, Bespoke had already made a brief comparison of BTC to the recent action of bull traders, in which it said, "Bulls look like they have a little more gas in the tank after [Monday’s] big rally, as futures are modestly higher. Crypto assets are another story, though, as bitcoin just broke through $31,000 and went tight through $30,000 after that."
Also occurring that same afternoon, Schaeffer’s Senior Market Strategist Matthew Timpane tweeted the above, pointing out BTC’s arrival at the 161.8% Fibonacci extension. Similar to when we speak about a Fibonacci retracement, the extension projects the position a stock’s shares could move to next. These levels often are of interest to traders, as they can help establish potential areas of support or resistance and indicate a good price target.
Digging deeper, Timpane notes that historically, great risk/reward trades have been set up throughout the bull rally by the weekly Fibonacci levels from the December 2017 high to the December 2018 low. Therefore, if we are entering a bear market, why wouldn’t these levels once again set up great risk/reward trades?
These types of trades work just like the pivot points you can see on BTC’s climb higher (in the chart below). BTC held the critical 161.8% Fibonacci level, which is in line with the equity’s year-to-date (YTD) breakeven mark and the lower range of the YTD Volume Point of Control (VPOC). In fact, BTC rallied hard off it, just like vicious bear market rallies in any market. To mark a longer-term bull signal, we’ll want to see a move above its 21-week moving average and eventually, see a bullish cross with the eight-week moving average. And although it produced a few false signals in the past, for the most part, it’s has been a good gauge for intermediate to longer-term trends. As an example shown on the chart below, Bitcoin precisely failed at the eight-week and 21-week moving average crossover and happened last week, before they dropped to the 161.8% Fibonacci level. And, the current trading range should continue to shrink as the moving averages fall, until we see an upward or downward break of those levels.
In closing, bulls will want to continue to hold this level and flesh out a bottom. If this level is breached, we could see a move towards $20,000 fast, as the cryptocurrency breaks YTD, VPOC, and YTD breakeven areas. Another potential trigger for this type of a pullback could be the next pivot level, if it occurs near the December 2017 high’s and the anchored volume weighted price average (AVWAP) from the last major low in March 2020, before the big breakout that happened in late 2020.
Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, June 27.