A month ago, on February 10th, we examined bitcoin’s tendency to extend the fifth waves of the impulse it draws. As of the time the article was published, the cryptocurrency was trading around $960, after a crash from $1075 to $914. But instead of selling with the other bears, the lessons learned from bitcoin’s manic-depressive past helped us recognize a great buying opportunity. In addition, the chart below was giving pretty positive signs, as well.
According to the Elliott Wave Principle, a five-wave impulse indicates the direction of the larger trend. As visible, between $751 and $1075 there was a nice five-wave pattern with an extended fifth wave. On the other hand, before the trend continues, a three-wave correction in the other direction occurs. Here, it was an expanding flat correction, whose wave “c” wiped out almost all of the fifth wave. Nevertheless, the 5-3 wave cycle was complete and pointing north. Bitcoin’s uptrend was supposed to resume.
And that is exactly what it did. $914 was never bothered again, because the bulls were too busy taking the virtual gold to a new all-time high of $1350 as of today. The third wave, labeled with (iii), climbed to $1298 and was followed by wave (iv), which achieved a textbook Fibonacci retracement of 38.2%. This means that today’s sharp rally to $1350 is probably wave (v). We have two reasons to believe this is so. First, the upper line of the trend channel managed to discourage the bulls. Second, there is a bearish divergence with the relative strength index between waves (iii) and (v), which happens quite often.
In conclusion, unless bitcoin decides to extend the fifth wave once again, we should prepare for a three-wave correction, whose targets lie in the area near $1100. This is not a sell signal, of course. The trend is clearly up and trading against it is not a good idea. What we are saying is that those, who would like to jump on the bitcoin wagon might soon get another opportunity at much better entry levels than the ones currently offered by the market.