Outlook

  • The immediate bias is neutral with prices trapped in a pennant, a triangular-shaped consolidation.
  • A pennant breakdown would signal a bearish continuation. However, the risk-reward ratio is not favorable for sellers at the moment, given the cryptocurrency's proximity to the significant support at $30,000.
  • The 200-day SMA at $41,136 holds the key for a reversal higher.

Bitcoin's bullish first quarter theme has come under fire this month, with prices falling by 40%. 

The digital asset tanked to $30,000 on May 17 and has coiled like a spring ever since, forming lower highs and higher lows in the $30,000 to $40,000 price range. 

The consolidation, when taken with the context of the prior sell-off from $58,000, represents a bearish pattern. 

Bearish Pennants are continuation patterns in strong downtrends and start with a pole – a steep drop in price, followed by a pause, a triangular-shaped consolidation or pennant – which usually refreshes lower, opening the doors for a deeper decline. Traders typically enter short positions with the downside break of the pennant. 

At the time of writing, bitcoin is trading near $34,350, and the pennant support is at $33,400.

However, at this point, the risk-reward ratio for short trade below $33,400 is not favorable, as support is located at $30,000 while resistance/stop loss at $41,136 (200-day SMA, which capped upside last week). Therefore, the profit potential is relatively small compared to possible loss, making it a risky trade. 

Seasoned traders will most likely enter fresh shorts below $30,000, as the next support is located directly near $24,000. 

The immediate outlook will neutral while the cryptocurrency is stuck in the pennant. However, a breakout or bullish reversal will be confirmed if prices surmount the negatively sloped pennant trendline. 

The upper end of the pennant is currently located at $39,250, although seasoned traders are likely to take long exposure after a breakout above the 200-day SMA resistance at $41,136. 

This is a guest post. Investing in cryptocurrencies is speculative and investors should carefully conduct all research and diligence before making trades.