Bitcoin has developed a classic head and shoulders reversal pattern on its hourly chart, with the cryptocurrency currently trading at $117,084 close to testing critical neckline support.
This bearish formation suggests that the recent consolidation phase could be setting the stage for a significant directional move, with the pattern’s completion potentially triggering substantial selling pressure.
The head and shoulders structure is clearly visible, with the left shoulder formed around mid-July, followed by a higher peak (the head) near the $120,000 resistance zone, and the right shoulder currently taking shape at similar levels to the left shoulder.
The neckline connecting the intervening lows sits precisely at the $116,000 psychological support level, making this a critical juncture for Bitcoin’s near-term price action.
The measured move target from a completed head and shoulders formation would project downside objectives toward the $105,000-$107,000 zone, representing a significant correction from current levels.
Potential Breakdown Situation
The momentum indicators are aligning with the bearish implications of the head and shoulders pattern. The MACD histogram shows clear negative divergence, with each successive peak in price accompanied by lower highs in momentum. This divergence is particularly pronounced at the right shoulder formation, suggesting that buying interest is waning significantly.
The stochastic oscillator has been trending lower from overbought territory, currently positioned in the middle range but with a clear bearish bias. The oscillator’s failure to reach previous highs during the right shoulder formation adds credence to the weakening bullish momentum. Additionally, the moving averages are beginning to flatten, with the shorter-term averages showing signs of potential bearish crossover.
Volume patterns during the formation also support the bearish thesis, with noticeably lighter participation during the right shoulder rally compared to the initial left shoulder and head formation. This declining volume on rallies is a classic characteristic of head and shoulders patterns and suggests diminishing buying conviction.
Bitcoin Levels To Watch
The $116,000 neckline represents the make-or-break level for Bitcoin’s immediate outlook. A clean break below this support, particularly on increased volume, would activate the head and shoulders pattern and likely trigger algorithmic selling from technical traders.
However, a strong bounce from the current neckline support could invalidate the bearish pattern entirely. For the reversal scenario to gain traction, Bitcoin would need to reclaim the $118,000 level decisively and preferably challenge the right shoulder high around $119,000. Such a move would suggest that the apparent head and shoulders formation was merely a consolidation phase rather than a reversal pattern.
The ascending trendline support provides an additional layer of support slightly below the neckline, potentially offering one final backstop before any significant breakdown materializes. Nevertheless, the confluence of technical factors currently favors the bears, making the next few trading sessions crucial for determining Bitcoin’s medium-term trajectory.