May 25, 2022

Potential for SFP and rebound - technical analysis of May 13, 2022

Bulls can finally breathe out temporarily. It's too early to talk about a weekly close, but for now the candle looks great. Historic trading volume, long wick down, tons of demand near the lows and (so far) continued support from last June's lows.

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I often mention bullish SFPs (from swing failure pattern), unsuccessful bearish breakout patterns. And if the weekly candle closes like it does today, it will be one of the best examples of SFPs ever seen.

The idea behind the failed breakout pattern isthat the bulls are pushing the price into the liquidity area. This is called liquidity building. If you want to fill huge orders on an asset, then you need to find enough people willing to buy or sell the asset to you on the other side of the trade. How to do it?

In the case of bullish SFPs, you start with an activeselling, moving the price below a key support level. If you want to fill huge buy orders, you will need many, many sellers. Many traders open shorts on the breakdown of support. These are sell orders. Countless traders have certainly tried to work out some sort of breakout of the most obvious support level on the chart, right in the $28.8K area. Here's how these price hikes below support come about.

Longs with a shoulder were also exhibited in quantityabove this level. Where did they naturally place their stop losses? At the support level (if amateurs) or slightly below it. What is a stop loss for a long trade? This is a sell order.

Provoking a move below this keylevel, the whales were able to fill a huge number of buy orders that were not available above. This is why the price drops below the support level, finds tons of trading volume there, and bounces higher.

The best examples of SFPs are formed on the most important support levels (or resistance, because SFPmay be bearish), which have not been tested on high timeframes for a long time. People incorrectly identify these patterns on low time frame charts when the above example is actually much better.

Closing of the week above ~$28.8 thousand.(depending on the exchange) will be a confirmation of the pattern. A close above $33k would have been even better and would have resulted in the biggest bottom candle in history at yet another key support level.

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Bitcoin hit 200 EMA (exponentialmoving average) on the weekly chart for the first time since March 2020. In 2020, the price also fell below this level for two consecutive weeks. It was bottom formation. Prior to that, the only touch of the 200 EMA line on the weekly chart was in 2018, and it also marked the market finding a long-term bottom.

The 200 MA level (simple moving average, not shown on the chart) has not yet been tested.

Daily chart

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Yesterday's candle twice surpassed in volume on December 4, 2021, when bitcoinfell quickly from ~$50K to $42K and rebounded. The volume is absurdly large, and this is exactly what I wanted to see as a sign of a likely capitulation. A long wick down on high volume, showing that demand has finally kicked in and the bears are finally in a good position to lose the battle. The daily chart has already confirmed the bullish SFP, closing above $26.6k on Bitstamp (see chart above). Today we are seeing a good bullish candle so far, which, if properly closed, will be another confirmation of a reversal.

The close of yesterday's candle was almost perfect for the bulls. It also gave us a strong bullish divergence with RSI on almost every timeframe.

This is reassuring. On the other side…

Of course, it would be better if the candle closed"in the green zone". Such wicks tend to fill up, that is, the price goes back down again to test the lows. For now, we still need confirmation in the form of today's green candle at the close.

More importantly, at the time of writing, every timeframe from the daily and below has the potential for hidden bearish divergence if the move is not continued.

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Confirmation of bullish divergence is also possiblesee on every timeframe up to 4 hours. We also need to see price retracement at different levels depending on the timeframe to avoid hidden bearish divergence. I would like to see a daily close above $31k or so. Not necessarily today, until the RSI makes a clear downward move.

Outcome:I am cautiously optimistic about the current structure, believing that it may indicate the formation of a bottom, but it is too early to talk about a full reversal, which could become the basis for a new bull market. Everything is gradual, step by step.

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