Summary Following its recent consolidation phase, Bitcoin is poised for a significant rally, potentially reaching $176,000. An initial five waves up have formed in the Elliott Wave Theory analysis, indicating the start of a new rally. A corrective pullback to form wave 2 is anticipated, providing an optimal entry point for long positions. Focus on Bitcoin's chart independently of the broader market, like the S&P 500; there's no actual correlation there anyway. In this difficult time in tech stocks with selloffs (and now bounces) creating uncertainty and volatility, I've been looking for the diamonds in the rough – the ones bucking the market trends. Just a few tech stocks are doing this, but there's a major player with big potential in the coming months for a rally of rallies. This player is none other than Bitcoin ( BTC-USD ). I've had to be very patient during its corrective phase in the last several months, dating back to December, but now it appears that's in the rearview and the crypto is ready to make one final rally before the bull cycle in the sector ends. Bitcoin is best tracked through technical chart analysis, and the news and events surrounding its adoption or demise in parts of the world don't factor into the direction of the chart. Yes, they can act as catalysts, but they don't predict direction or targets. You can read more about how the news isn't a great predictor of Bitcoin's moves in an article I wrote in 2021 . While I relied more on traditional chart analysis back then, I've seen fantastic success with Elliott Wave Theory in recent years. The technical chart analysis today requires a bit of EWT knowledge, but I'll try to break it down for you as simply as I can. While you haven't seen a public article from me on Bitcoin in about a year and a half, I've been keeping Tech Cache subscribers apprised of the moves and put a buy call out in October to them when I saw the crypto clear resistance around $70,000. I then said to trim around $105,000 as it reached the next target. But here we are now, after another consolidation period, where all-time highs are being set up once again. This consolidation over the last several months has been forming a larger degree fourth wave in an even larger degree fifth wave. This larger degree fifth wave would mark the end of the bull market for Bitcoin and send us into a bear market for the next year or two (maybe longer) before things settle out and the idea of another bull market creeps in. So, to set you up, this is a fifth wave of a fifth wave finalizing. On the next higher level down, this is a view of the third wave (orange III) preceding the consolidation of the last few months in orange wave IV. Chart author's However, I'm interested in the move following the completion of wave IV. This is what opens the door to $176,000. Once a corrective move like a fourth wave completes, we look for five waves up in standard scenarios to indicate the fifth wave has started. However, there's a slight wrinkle in this setup. One of the most significant pieces of this analysis is how the prior pattern may have been completed. You'll notice at the bottom of the chart below, I wrote "Truncated 5th." This means the preceding pattern ending didn't make a complete move down in the final fifth wave – it came up short and didn't make a lower low to confirm the prior end. Everything from there is predicated on it because it means I'm counting from a low that wasn't the lowest low but potentially was the end of the pattern nonetheless. If I'm correct, then there should be no issues. If I'm wrong, the count from there isn't accurate, and this could be another corrective bounce in progress. Chart author's But now, even with the truncated fifth wave, there's been enough price action to lower the probabilities of something strange like that at play. That price action reveals Bitcoin has seen five waves up with good extensions on the Fib levels to consider the truncated fifth a bit less risky. But the story isn't over; in fact, it may not have even started yet. There's an important piece to EWT: The 1–2 setup. This marks the cleanest, least risky, highest reward setup in the theory's book. It provides a clear downside invalidation level with projected upside targets in the immediate scenario. And what we're looking for now is the 2 in the 1-2 to form. At this point, the most significant factor is not breaking below the low that started wave 1 (in this case, circle 1). This negates the 1-2 setup, and thus the setup to $176K. So, right off the bat, you have your stop loss – in this case, about $74,550. For this setup to pay off, it must remain above that level. But before even then, if we were to approach the $74,550 level, the way it gets there will tell us ahead of time if it's going to hold. While impulsive moves are usually five waves, corrective moves are generally three waves. What I want to see for wave circle 2 is three waves down, not five. That would look something like this green A-B-C move for circle 2. Chart author's Now, you'll notice the green box. Why the green box? Well, for one, it represents the target zone for circle 2. But why? The box is based on the Fibonacci retracement of wave circle 1 (the maroon colored levels in the chart above). Generally, wave two retracement is between the 38.2% and 61.8% levels. The 50% level is somewhere in between and is also a level where wave two can complete. This is easier to narrow down once the downside has started, and at least the A wave has been put in. Then, lower-degree Fib targets can be established to guide the higher-degree targets. OK, so let's say wave circle 2 plays out as I have it, you're likely wondering where $176,000 comes into play. The 1-2 setup provides the needed inputs to project where the other three waves of the five-wave setup land. This projection is based on a wave 2 (circle 2) that completed near the 61.8% retracement level. If it doesn't retrace that low, these targets shift upward. At any rate, third waves typically project to the 161.8% level, sometimes the 176.8% level. For crypto, we can see extensions like we saw in circle wave 1, where the third wave neared the 200% extension. However, I've mapped out the typical targets below to remain conservative. This places wave circle 5 at just over $176,000. Chart author's This can take into the end of the year to play out, or could happen by the fall timeframe. EWT is not made for timing, mainly direction, targets, and the probabilities of those two, so I don't have a great edge on when this happens (if it does). The bottom line is this setup's first piece looks to be in place and opens the door to a significant rally. The next piece is forthcoming, and the structure and holding the stop loss level are critical to seeing the rest of the waves take shape. Naturally, there are some risks to this analysis. Because we haven't seen a pullback off a high that breaks any important Fib levels, wave circle 1 can still extend higher, shifting this analysis upward, but with the same principles. Another is a very shallow wave circle 2 (doesn't reach the 38.2% retrace level) and heads higher in the rally without too much warning. Now, before you start thinking about equities correlation or how it may follow the S&P 500 ( SP500 ) ( SPX ) ( SPY ), use Monday as an example of Bitcoin topping and retreating, yet the S&P 500 shot up considerably. Focus on Bitcoin's chart as its own and follow the pattern playing out there. It looks nothing like Bitcoin's chart and therefore requires its own analysis. All in all, I'm looking to add to my Bitcoin long position once I see a corrective pullback to at least A of circle 2. The real trigger to go long will be circle 2 filling out, followed by the first five waves up in circle 3. That will give you an even tighter stop loss level (a lower degree 1–2) and provide the fastest reward setup, giving you the bulk of the upside in wave circle 3 near $160,000. Don't be in a rush to go long; let the setup do its thing, and then manage the risk properly with the stop loss levels provided by 1–2 setups.
