Bitcoin Sinks Under 200-Day SMA: Brink of Collapse or Major Support Test?

After falling below the 200-day Simple Moving Average, the $BTC price is on the brink of collapse. However, the $60K horizontal support level is holding for now. Will a collapse down to the low $50K level be next, or is Bitcoin grinding out a bottom with plenty of sideways choppiness to come?

Uninterrupted lower highs and lower lows 

Source: TradingView

The short-term time frame reveals that the $BTC price is snaking down after falling out of the head and shoulders pattern, making lower highs and lower lows as it goes. As can be seen, a descending trendline has formed from the top of the last shoulder of the pattern, and so far the price has respected this trendline. 

A breakout of the trendline would mean that the bulls are putting on a fight, while a rejection and another lower low could signify that a potential collapse has started.

One thing for the bulls to feel good about are the longish tails below the lower candles. Looking left, this was last seen at the time that the $BTC price was hitting the bottom after the crash out of the previous big bear flag. These are signs that buyers are coming in strongly at these low levels.

Support level same as for 2024 8-month bull flag

Source: TradingView

While a lower low was put in by one of the recent long candle tails, if we look left and well beyond the confines of this chart, the support levels here are the same ones that run through the mid to low levels of the 8-month bull flag in 2024. 

The Stochastic RSI indicator lines are almost at the bottom in this important daily time frame, and likely will be at the bottom for next week. Upside price momentum can begin to be signalled when these indicator lines bounce and get above the 20.00 level.

Bullish divergence can be seen in this time frame as the price action comes down while the RSI indicator line rises.

High time frame bullish divergence

Source: TradingView

Now in the weekly time frame, a much bigger divergence can be seen. The $BTC price action falls from the bottom of the big bear flag to the current low, while in the RSI, the indicator line is rising. This is bullish divergence, and the higher the time frame, the stronger the corrective impulse is likely to be.

That said, this can take time to play out, and there are no guarantees. It can also be seen that the current weekly candle is below the 200-week SMA and the bull market trendline. A candle close at the end of play on Sunday that is below these important levels would not be a good sign, and could signal further downside price action.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.