Examining A Rare Bull Market Corrective Pattern
Bitcoin price in a flash found itself below $50,000, only weeks after the top cryptocurrency set a higher high. End of year price targets for $100,000 or much higher are now no longer within striking distance, thanks to a rare bull market corrective pattern that few saw coming.
But although Bitcoin has fallen “flat” on its back, it could be the last time the cryptocurrency does so before the conclusion of the bull market cycle.
The Shocking Correction Crypto Die-Hards Didn’t See Coming
Ask most investors in Bitcoin what their thesis is, and the majority would probably point to the cryptocurrency’s scarce supply, the halving, or the stock-to-flow model.
The cyclical behavior related to the halving every four or so years is all that’s ever existed historically and all the masses have to go on. The stock-to-flow model takes scarcity and the halving into consideration, to predict prices as high as $100,000 to $288,000 in December 2021. Instead, each coin trades today at $49,000.
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Also throughout history, each time Bitcoin price made a significant higher high, it continued in a parabolic uptrend. This time, however, was different. The leading cryptocurrency by market cap set a new high above and beyond its April peak, but has since corrected back down by as much as 38%.
So what gives? Well, the first clue to the type of corrective pattern Bitcoin is in, is related to that 38% drawdown. That’s because 38.2% is the 0.618 Fibonacci retracement level. With a 61.8% move in mind, there is a likelihood that the corrective pattern in play is called a “running flat.”
Which type of "flat" is Bitcoin trading in? | Source: BTCUSD on TradingView.com
According to Elliott Wave Theory, during bull markets, there are two major corrective phases and three impulses up that make the primary uptrend. These phases alternate not only between impulse and corrective, but the strength of impulses and severity of corrections also alternate. But we’ll return to the concept of alternation shortly.
The market had expected the fifth and final impulse up to $100,000 or more, but a potential “flat” has prevented a wave 4 from concluding – either up until now, or just yet. What isn’t entirely clear, is the type of flat that Bitcoin is in.
Next Phase Of Bitcoin Bull Market Begins With Conclusion Of Flat
Flats can be regular, irregular or expanded, or in very rare cases, “running.” Running flats are so rare, because they occur when higher timeframe uptrends are so strong and dominant, the flat fails to terminate beyond the A wave in the correction.
The comparison above shows that Bitcoin price action fits the Fibonacci relationship of the pattern flawlessly. The higher high and B wave stopped out at around 123.6% of the wave A down, then fell precisely to 61.8% of the B wave up to potentially complete the C wave.
The question is, does the collapse finish here? Or does Bitcoin price continue down to form an expanded flat instead? The 123.6% extension target of an expanded flat would instead be closer to $19,500 – where BTC peaked back in 2017.
Elliott Wave alternation guidelines explained | Source: BTCUSD on TradingView.com
But there is still plenty of hope left, for bulls, according to Elliott Wave’s rules of alternation. A primary motive wave alternates between impulse and corrective waves in a five wave pattern. Even-numbered waves are always corrective, with odd number waves moving with the primary trend.
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Even corrective waves alternate, in simplicity and severity. One correction tends to be sideways, while the other is sharp. It is difficult to imagine anything sharper than Black Thursday of last year. Elliott Wave also specifies that one correction is likely to be a simple ABC pattern, while the other is much more complex.
The complexity of the consolidation during 2019 versus 2021 is vastly different. There is also a clear wave one and longer wave three that have formed a wedge-like pattern. If the wedge pattern holds, an expanded flat will have been narrowly avoided, and the fifth and final impulse wave should begin.
Leading into the fifth wave isn’t the happy ending bulls are hoping for, however. The resulting pattern, according to the same Elliott Wave Theory that suggests the uptrend is still in tact, could result in the worst bear market ever once the uptrend has completed.
— Tony “The Bull” Spilotro (@tonyspilotroBTC) December 6, 2021
Follow @TonySpilotroBTC on Twitter or join the TonyTradesBTC Telegram for exclusive daily market insights and technical analysis education. Please note: Content is educational and should not be considered investment advice.
Featured image from iStockPhoto, Charts from TradingView.com