Bitcoin’s sharp correction may not have broken its uptrend, but several altcoins have signaled that a short-term top could be in place.
After an incredible run-up to nearly $42,000, Bitcoin (BTC) price finally entered a significant correction, and at the time of writing the price is down by about 18%. While the swift drop to $30,402 may not induce sleepless nights from the HODLer crowd, large drops like the one seen over the past 24-hours can easily blow up a leveraged trader’s portfolio. The sharp downside move also threatens to wipe out a large portion of the gains accrued over the past few weeks.
Data from Bybt indicates that over $2.7 billion worth of futures contracts has been squared off in the past 24 hours.
Once traders in long positions start getting liquidated due to margin calls, traders who have been waiting to buy withhold their purchases as they expect an even better opportunity to buy at a bargain. This lack of demand and excess supply trigger steep falls like the one seen today.
Similar to how resistance levels fail to stall a rally backed by strong momentum, during panic selling, support levels fail to arrest the decline. Professional traders usually do not step in to catch a falling knife. They prefer to wait for the excess froth to clear and the selling to subside before jumping in to buy.
Let’s study the charts of the top-10 cryptocurrencies to identify the levels that may act as strong support.
BTC/USD
Bitcoin dipped to an intraday low at $35,111.58 on Jan. 10 but the price recovered sharply and closed at $38,161.04. However, the bears were in no mood to relent as they again sold aggressively.
The BTC/USD pair broke below the critical support at the 20-day exponential moving average ($32,093) but found support at $29,688.10 near the 38.2% Fibonacci retracement level.
If the rebound off $29,688.10 sustains, it will be considered as a normal correction after an extended bull run. The bulls will then again attempt to resume the uptrend.
On the contrary, if the bears sink the price below $29,688.10, the next support is at the 50% retracement level at $25,897.42, placed just above the 50-day simple moving average at $24,307.
A deep fall to this level will suggest that the upside momentum has broken and the pair may chalk out a new trend.
ETH/USD
Ether (ETH) made a long-legged Doji candlestick on Jan. 10 and that was followed by a sharp fall today, which suggests aggressive profit booking by the traders. The bulls are currently trying to defend the 20-day EMA ($956).
If they succeed, the ETH/USD pair may rise to $1,100 where the bears may again step in and sell the relief rally. If the price turns down from this resistance but the bulls do not allow the price to dip below the 20-day EMA, it could result in a consolidation for a few days.
On the contrary, if the bears sink the price below the 20-day EMA, the next stop is $840.93 and if this support also cracks, the decline may extend to the 50-day SMA at $712. The deeper the fall, the longer it will take for the bulls to stage a recovery.