The US stock market is starting to show serious signs of a potential big price correction as the Middle East conflict continues unabated and with no resolution in sight. Into all this uncertainty Bitcoin is climbing higher. Is Bitcoin finally becoming a true safe haven, or is this just a bear flag still playing out?
S&P 500 rolling over
Source: TradingView
The S&P 500 certainly looks to be rolling over. The Index reached the top of the ascending channel and was unable to break through, plus there is a full-scale crisis in the Middle East. A perfect combination for a potential big correction, either back to around 6,000 points, or more probably down to the lower trendline of the channel at around 5,600 points. Progress towards some kind of resolution in the Iran conflict can help decide the place for an eventual bounce.
Whereas the beginning of the last big bounce was helped by bullish divergence, this current drop is into the teeth of bearish divergence. The RSI at the bottom of the chart shows a steady decline since the first quarter of 2024, while the price action has generally risen.
$BTC price heading to top of bear flag?
Source: TradingView
As can be seen in the short-term chart above, the $BTC price is going in the opposite direction. Having just broken through the minor descending trendline, and now attempting to break above the $71,800 horizontal resistance, $BTC is certainly heading higher. Perhaps a higher high can be established after all.
Nevertheless, the purple lines delineate the bottom and the top of the bear flag. A higher high would take the price almost to the top trendline of the bear flag. Given that all the short-term Stochastic RSI indicators are starting to top out, a rejection from the top of the flag would be likely as upside momentum fades.
RSI channels are great barometer for price action in daily time frame
Source: TradingView
The daily chart reveals that the 50-day simple moving average (SMA) has fallen down to become exact resistance at the current $BTC price. If one looks back at the previous bear flag as a guide, the price did manage to push through this SMA and then used it as support, until the time it fell through and then out of the bottom of the bear flag. Could a similar situation occur again?
The RSI at the bottom of the chart illustrates two rising channels with the indicator line within them, showing a similar path to the price action in the bear flags. It can be seen that the indicator line dropping out of the first channel forewarned the price descent out of the first bear flag. Therefore it would pay to watch how the indicator line behaves in this second rising channel.
RSI breakouts in weekly time frame accurately predict rallies
Source: TradingView
In the weekly time frame the Relative Strength Index (RSI) is once more a very useful tool, and in this much higher time frame it has even more importance. It can be observed how each time in the previous two big patterns, a break of trend in the RSI corresponded with the start of a huge upside rally.
The trendline for this current indicator line movement is not perfect like the previous two were. However, it’s probably good enough, and it is showing an imminent breakout. If the price action above continues to rise, this breakout is going to take place.
Going back over big rallies for the last 3 bull market cycles, the breakout in the RSI heralds them all. As long as this breakout does occur, it would point to a matching rally in the price action. What stops it? If the indicator line does not break out and is instead rejected, this could mean a period of a few more weeks or even months before the indicator line is ready to break through again. Definitely something to keep an eye on.
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.
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