Bitcoin (BTC) fell sharply on Sept 7, reaching a low of $42,843, which at the time amounted to a fall of 19% on the day. However, it has bounced back slightly since, creating a long lower wick.
While the bounce has been significant, indicators are showing bearish signs that forewarn a potential trend reversal.
BTC falls sharply
On Sept 5, BTC broke out from the $51,200 resistance area, which is the 0.618 Fib retracement resistance level (white). It proceeded to reach a high of $52,620 two days later.
However, BTC fell sharply on Sept 8, dropping all the way to a low of $42,483. Despite the drop, BTC created a long lower wick and bounced (green icon), reaching a high of $47,340.
The bounce validated the $43,900 area as support. This is the 0.382 Fib retracement support level and a horizontal support area. Furthermore, it coincides with the Supertrend line (green).
Despite the bounce, technical indicators are turning bearish. The drop transpired with considerable volume and the MACD has nearly crossed into negative territory after decreasing for a considerable period of time. The RSI has also moved below 50. This is extremely important since the cross above 50 marked the beginning of the upward move on July 21.
When combined with the bearish readings from indicators, especially the RSI cross, the wave count suggests that the bullish impulse that began on July 20 is now complete (orange). Wave five was shorter than expected, only reaching the 1:1 length of wave one (black) but failing to reach the 0.382 length of waves 1-3 (orange).
If correct, BTC has completed wave A of an A-B-C corrective structure. After wave B is complete, another drop would be expected. In this case, the $37,900 area could act as support. This is the 0.618 Fib retracement support level (white) and a horizontal support area.
The short-term count shows a completed ending diagonal, in which the final upward movement just briefly overshot the resistance line of the wedge.
The violent and sharp rejection after the wedge was completed is akin to an ending diagonal.
The alternative count indicates that the drop was wave C (black) of an expanded flat correction (black). In this case, BTC could move upwards toward new highs to complete wave five (orange).
However, this count seems less likely, due to the fact that wave C is extremely extended compared to A. Furthermore, there is no sufficient alternation between waves two and four, which are nearly identical.
The expanding flat would confirm a bullish long-term count, while the A-B-C correction would indicate that the corrective triangle could still transpire.