After rallying over 50% since early November, bitcoin (BTC), the leading cryptocurrency by market value, looks to be carving out a pattern that might signal a significant shift in its price trajectory. If the current trend continues, BTC could revisit the mid-$70,000 range in the near future.
The recent price action of BTC has been characterized by what technical analysts refer to as a “head and shoulders” (H&S) pattern. This pattern is often interpreted as an indicator of a potential bullish-to-bearish trend change. The first shoulder was marked by a failed attempt to breach the $100,000 level in November, which set the stage for the subsequent movements.
The next phase of this pattern unfolded with the formation of the head, as BTC saw a swift retreat to approximately $92,000 following its all-time high of over $108,000 in the latter part of December. Recently, we observed a 5% decline to nearly $97,000, further hinting at the development of a right shoulder.
Should the sell-off continue and BTC prices dip below the neckline—the horizontal trendline that connects the troughs of the two shoulders—the head-and-shoulders reversal pattern would be confirmed. At the time of writing, this crucial support level, referred to as the neckline, is around $91,500.
A breakout below this price level could set the stage for a decline towards approximately $75,000. This target is determined through the measured move method, which calculates the vertical distance from the peak of the head to the neckline, subsequently subtracting that distance from the neckline price to estimate potential downside targets.
In the realm of technical analysis, traders consistently analyze charts for price patterns to forecast future movements. Nonetheless, it’s essential to exercise caution while navigating these patterns, as they can occasionally yield false signals, potentially leaving traders caught on the wrong side of the market.
