After the strong surge on Friday evening, Bitcoin has since been trading sideways over the weekend, consolidating its recent gains. Based on the current structure, it appears we are in Wave 3 of the larger Elliott Wave pattern. However, within this Wave 3, we might be entering internal Wave 4, a minor correction phase, as suggested by the price action.
Key Fibonacci Levels for Support
As shown in the chart, I have drawn key Fibonacci levels that could act as support during this corrective wave. These levels will be important to watch as Bitcoin potentially retraces within Wave 3. The 0.618 Fibonacci retracement at $62,217 and the 0.5 retracement at $61,345 are likely areas of interest where price could find support before continuing upward.
Market Sentiment: Warning Signs
While the technical structure is pointing to a typical retracement in internal Wave 4, the market sentiment is flashing warning signals. Both Open Interest (OI) and funding rates have shot up significantly, indicating that traders have become excessively bullish and over-leveraged. Historically, when funding rates and OI spike, it often signals that the market is overly euphoric, which can lead to a liquidity grab and a potential pullback.
Additionally, there is a considerable amount of liquidity resting below the current Bitcoin price, which could attract selling pressure in the short term.
Trading Strategy
Given these market conditions, we have decided to close our Bitcoin long position entirely, as the market appears overbought, and the Open Interest is too high to maintain a safe position. We believe there will be a better entry opportunity in the near future as Bitcoin corrects.
We have set a limit order at $62,500, just below a significant liquidity cluster. This level is also close to the Fibonacci support zone, providing a favorable risk-reward setup for re-entry if the market dips to this area.
Conclusion
While Bitcoin remains in Wave 3 on the larger time frame, the current price action suggests we may see a correction within this wave before the upward trend resumes. The market is showing signs of euphoria, and with rising OI and funding rates, caution is advised. We expect a retracement to $62,500, which could provide an excellent opportunity to re-enter the market once the correction has played out.