Bitcoin Retests Critical Support: Analyzing Short-Term Bearish Signals and Long Squeeze

Bitcoin Price Action: Retesting Critical Support

As of October 24, 2024, Bitcoin is retesting a critical area on the price chart that could potentially flip the market from bullish to bearish again. The short-term has already been playing out a bearish divergence and is now experiencing a long squeeze, which is bearish in the short term.

Analyzing the 2-Day Bitcoin Chart

Currently, Bitcoin is retesting a critical level on the price chart which previously acted as significant resistance. Now that we have recently broken out above that area, it should technically act as new support. This would be very bullish if it holds. However, if we see a confirmed break back below this level with a candle close below it on the 2-day chart, it would signal a bearish turn, at least in the short term.

This critical support level sits at approximately $65,000 to $65,500. The next 2-day candle close will confirm in just over a day from now. If we see that candle close below $65,000, it would technically invalidate the bullish breakout seen about a week ago.

Daily Bitcoin Chart Analysis

On the daily Bitcoin chart, we've broken back below the area between $66,800 and $68,300. Now that the price has fallen below $66,000, our next major area of support on the daily timeframe is between $64,100 and $64,500.

If we break below $64,100, we could find short-term support around $63,000 and major support between $60,000 and $61,000. These are potential stopping points for the current bearish price action in the short term.

Short-Term Bearish Divergence

Looking at the 3-hour Bitcoin chart, we've been seeing an active bearish divergence playing out for about half a week now. This has resulted in a short-term pullback, which is one of the most common outcomes from a bearish divergence. We've effectively lost almost all of the bullish momentum in the shorter term.

However, it's worth noting that on the 3-hour Bitcoin chart, the RSI is now starting to enter oversold territory for the first time in a few weeks. This technically means we're starting to run out of room to the downside, similar to how an overbought signal means we're running out of room to the upside.

Potential Short-Term Bottom

Due to the oversold RSI, we could potentially see some sort of low put in place within the next 1-2 days. This could lead to a bounce or sideways price action to help reset the RSI out of oversold territory. However, this doesn't guarantee we're at the bottom right now - it just indicates that we're likely to see some sort of low form soon to provide a break from the bearish price action.

Long Squeeze and Liquidations

One of the reasons for the pickup in bearish momentum is due to a long squeeze. Looking at the Bitcoin liquidation heat map, we can see that there was more liquidity building to the downside below the price, which signaled a potential long squeeze.

Over the last day, we indeed saw a long squeeze play out as expected. This is bearish because it wiped out major liquidity to the downside, liquidating long positions and adding sell pressure to the market.

Liquidity Levels to Watch

Zooming out on the Bitcoin liquidation heat map for the last two weeks, we can see:

• A decent amount of liquidity between $64,800 and $64,200
• Another significant liquidity level around $61,500 to $62,000
• Some upside liquidity between $69,600 and $70,000

Currently, there's more liquidity immediately to the downside compared to the upside, which is bearish. The price of Bitcoin typically moves towards areas of high liquidity.

Ethereum Price Analysis

Ethereum is continuing its rejection from the $2,800 level, which is still acting as major resistance. For support, we could find some around $2,500, which we're currently approaching.

Key Support Levels for Ethereum

• If we break lower, the next significant area of support is the golden pocket between $2,150 and $2,200
• On the 12-hour timeframe, we're currently testing support between $2,440 and $2,475
• If we break below $2,440, the next short-term support to watch is between $2,280 and $2,320

Ethereum is also playing out an overbought signal on the 12-hour RSI while rejecting major resistance between $2,700 and $2,800.

Ethereum's Bearish Divergence

On the 4-hour timeframe, Ethereum is still playing out a bearish divergence in the short term. This has resulted in a pullback, which has accelerated over the last half-day to one day. This acceleration is likely due to the long squeeze playing out, forcing the price lower as long positions get liquidated.

Ethereum's RSI Entering Oversold Territory

The 4-hour Ethereum RSI is now entering oversold territory for the first time since the beginning of the month. The last time this happened, we were approaching a local low. While this doesn't guarantee we're at the bottom right now, it suggests that we're likely to see some sort of low form within the next day or two, followed by a slight bounce or sideways price action.

Solana Price Action

Unlike Bitcoin and Ethereum, Solana is holding up relatively well. It's still trading within a sideways price range between support and resistance.

Solana's Key Levels

• Support area: Between $159 and $163
• Resistance area: Between $170 and $175

Solana is currently chopping around sideways within this range. This means the bullish breakout for the inverse head and shoulders pattern is technically still active, as we haven't confirmed a break back below the neckline or support area.

Solana's Bullish Pattern

To invalidate the bullish breakout, we would need to see a confirmed break with a daily candle close below $157, which would also mean breaking below the current support area. The bullish price target for this pattern is close to $200, but it's important to remember that price doesn't move in a straight line.

It wouldn't be surprising to see Solana continue to bounce around within this sideways price range for a while longer, as it currently looks relatively neutral in the shorter term.

Trading Opportunities in Different Market Conditions

Whether the market is bullish, bearish, or moving sideways, there are always opportunities to profit for skilled traders. It's crucial to understand how to adapt your strategy to different market conditions.

Trading Bullish and Bearish Moves

In trending markets, whether up or down, traders can profit by taking long positions in bullish markets or short positions in bearish markets. This involves carefully analyzing price action, support and resistance levels, and various technical indicators to identify high-probability trade setups.

Profiting from Sideways Markets

Even in choppy, sideways markets like we're currently seeing with Solana, there are ways to profit. Range-bound trading strategies, such as buying at support and selling at resistance, can be effective. Additionally, options strategies like iron condors or butterfly spreads can be used to profit from a lack of significant price movement.

Conclusion

The cryptocurrency market is currently showing mixed signals, with Bitcoin and Ethereum facing short-term bearish pressure while Solana holds steady in a sideways range. Bitcoin's retest of critical support around $65,000 will be crucial in determining the short-term direction of the market.

Traders should keep a close eye on the key support and resistance levels discussed, as well as the oversold conditions on shorter timeframes that could lead to temporary relief rallies. However, it's important to remember that oversold conditions don't guarantee an immediate reversal, and further downside is still possible.

As always, proper risk management is crucial when trading in volatile markets like cryptocurrencies. Use appropriate position sizing, set stop losses, and never risk more than you can afford to lose. Stay informed about market developments, continue to analyze charts across multiple timeframes, and be prepared to adapt your strategy as market conditions evolve.

Remember, successful trading is not just about predicting price movements, but also about managing risk and preserving capital for future opportunities. Whether the market moves up, down, or sideways, there are always ways for skilled traders to find profitable opportunities.

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