Bitcoin (BTC) is about to break out of a descending wedge pattern that has been in place since April 18th. This could be the catalyst for a significant move higher.
Bitcoin has been down since hitting a local high of $48,189 on March 28. In the period since March 11, the downward movement has become very gradual and choppy. Since then, BTC has fallen less than 3%.
During this time, the RSI generated a significant bullish divergence (green line). Such divergences often precede upward moves.
Furthermore, BTC has bounced off the $38,000 horizontal support area. The area has acted as a strong horizontal support level since early March.
Today, BTC is in the process of creating a bullish engulfing candlestick. This bullish candlestick pattern would be confirmed with a close above $38,525. The formation of this bullish pattern would coincide with the bullish divergence that has been developing in the RSI.
BTC attempts breakout
The 6-hour timeframe shows BTC trading within a descending wedge since April 18. The wedge is often viewed as a bullish pattern that leads to breakouts most of the time.
Additionally, the pattern has been paired with bullish divergence in the RSI and MACD, both of which support the possibility of a breakout.
If there is a breakout, the next area of resistance would be found at $42,800. This target is the 0.5 Fib retracement resistance level and the top of the wedge.
Wavenumber analysis
The most likely wave count indicates that BTC has completed an ABC correction (red) since February 10th. All movement was contained within an ascending parallel channel. Since the bottom of wave C is higher than wave A, it is an ongoing correction.
If BTC bottomed, waves A and C would have an exact 1:1 ratio, which is common in such corrections.
The number of sub-waves is shown in yellow in the chart below, suggesting that BTC is in the fifth and final sub-wave, which has taken the shape of a final diagonal, hence the shape of the wedge. A wedge breakout would confirm that the correction is complete.
If this is the case, the number of long-term waves suggests that significant upward movement was likely to follow.
To beClick here for InCrypto’s previous Bitcoin (BTC) analysis
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