Slowly rising prices followed by indecision creates uncertainty. Pullbacks are necessary to provide integrity and honesty in a rising market.

 

Finally, a pullback, bullish conviction to be tested

 

I am going to use the Ichimoku Kinko Hyo system as the primary analysis tool for this article. One of the things I teach about the Ichimoku system is a concept that is not written about by leading experts and analysts of the Ichimoku system. That concept is what I call ‘The Max’ – which is the max mean that price will move away from the Kijun-Sen before halting and consolidating, or (more likely), return to the Kijun-Sen. If you look at any chart of any instrument on any timeframe, measure around 10 to 20 of the biggest moves away from the Kijun-Sen from both above and below the Kijun-Sen.

Bitcoin, for quite a number of days, has been creeping closer and closer to that max range. That was until yesterday (May 3rd, 2019). I think it’s important to put how bullish and strong Bitcoin’s move has been since mid-December 2018. If you look at the chart above, Bitcoin has not had a strong volume move below the baseline since January 10th, 2019. That’s quite a long time. Price has found support against the Kijun-Sen for all of 2019 – a very, very impressive move. The most recent price action in May was clearly the more expansive and that is represented best by how far the Tenken-Sen moved away from the Kijun-Sen. Hell, price was consistently finding support against the Tenken-Sen for the entire month of May.

But is this the sign of a continuation of the bear market of 2018? Is the bull run over? Are we doomed? No. I keep telling students and my readers that any major selloff or correction is something I look forward too. If you are a perma-bull in cryptocurrencies, I don’t know how you couldn’t be happy with greater than -10% moves. Those are gifts. Those are discounts. Those are stupidly amazing deals. But nothing rises consistently. People will collectively, for whatever reason, take profit at the same time and then this is followed by weak hands who panic and abandon their positions. But this is normal. But it is also extremely important.

A pullback to the Kijun-Sen on the daily chart is an important event – especially when it happens for the first time after an explosive new trend. The first test of this important level is where bulls and bears will have their first real fight. It’s a kind of contest of conviction and truth. Short sellers come in because they believe Bitcoin is overpriced and want to pull prices lower. Bulls need to come in and defend the valuation of Bitcoin. During a pullback like this, it is incumbent on all bulls to prove that the present value is not only fair – but that it’s still at a discount and that higher prices are still to come.