In a surprisingly aggressive move, bitcoin dropped $800 dollars in a few short hours. The move seemed to cripple many of the most bullish markets leaving some altcoins seeing 30–40% drops before finding any local bottoms. Last night’s move marked the first new low since the trading range (TR) formed 3 weeks ago:

Figure 1: BTC-USD, 2-HR Candles, Potential Distribution Trading Range

Until last night’s drop, the current trading range had many hallmarks of a reaccumulation trading range (a continuation pattern) that gave many bulls confidence in their investments. However, the drop came on heavy volume and managed to puncture the lower boundary of the TR — signifying an underlying weakness in the current market. This drop below the TR is referred to as a Sign of Weakness (SOW). A SOW is an indication that market still has plenty of overhanging supply (interested sellers) and not enough demand to keep market afloat.

Sometimes, the lower time frames make it difficult to actually see the impact of a move. As we start to zoom out we can see just how substantial the volume was in relation to the previous weeks of market activity:

Figure 2: BTC-USD, 4-HR Candles, Higher Time Frame Volume View

At the time of this article, we are in the process of testing the lower boundary of the TR from the bottom-side. The reaction to this lower price range will give us further insight as to the upcoming market movements. This is the first sign of weakness in our current trend, so it stands to reason that we will see a bounce in price to retest the resistance within the TR and further test the supply/demand of the market. Without proper distribution, its unlikely to see a sustained continuation of the downtrend, but at this point we shouldn’t rule anything out. On the short term, we can expect a retest of the $8,800s and possibly the lower $9K values.

A somewhat alarming development is occurring as a consequence of this drop. Shortly after the market saw a golden cross of the 50/200 EMAs on the daily chart, we saw a definitive puncture of that support. Typically, the market doesn’t just plunge through the 200 EMA without seeing some sort of resistance, but a daily candle close below the 200 EMA marks a more macro bearish signal. That, combined with a Bollinger Band expansion, gives us an indication that the move downward may, on a macro scale, be a prolonged move over the coming days and weeks:

Figure 3: BTC-USD, 1-Day Candles, Macro View

Summary:

1. A strong move downward brought the entire crypto market to its knees as bitcoin saw an $800 drop in a few short hours.
2. This move marked the first sign of weakness in our current uptrend
3. The sign of weakness combined with macro signals interacting with the Bollinger Bands and 50/200 EMAs hint toward a possible macro move downward.

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