In our last update, we mentioned that Bitcoin (our market proxy) was fast approaching major resistance and to expect some type of pullback or weakness. Since then we have seen the initial phase of that weakness play out.
Below is a weekly chart of Bitcoin. Notice how price advanced to resistance and formed a bearish shooting star candle. This type of candle is a bearish reversal candle and thus signals a possible change in trend when occurring after an advance. It has added negative implications because it has occurred at major resistance.
Below is a daily chart of Bitcoin and notice how we have two bearish engulfing candles. This suggests that we should expect more near-term weakness.
Keep in mind that in our last update we highlighted how the recent advance off $30,000 has occurred on relatively low volume. Normally you want to see strong volume to confirm a breakout. The fact that we have not is something to monitor.
Given these bearish factors, now is not the time to be aggressively buying Bitcoin or any other coins.
If you are used to looking at line charts and you are not familiar with candlestick charts, I would encourage you to take a little time and educate yourself.
Candlestick charts are one of the first things you learn when you embark on the long journey of learning about technical analysis. They provide a much more comprehensive understanding of price action than line charts.
I would recommend the following resources:
StockCharts.com – This is a charting platform and they have a lot of free educational content on their ChartSchool page.
Japanese Candlestick Charting Techniques, by: Steve Nison
Craig Thompson, ChFC
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