The U.S. stock market is starting to show signs of a potential major price correction, with the Middle East conflict ongoing and showing no signs of resolution. Amidst all this uncertainty, Bitcoin is climbing. Will Bitcoin finally become a true safe haven, or is this just a bear flag still playing out?
S&P 500 Index Pulls Back
The S&P 500 index does look to be pulling back. The index hit the top of an ascending channel, failed to break through, and there is a full-blown crisis in the Middle East. This is a perfect combination for a potential major correction that could go back to around 6000, or more likely down to the lower trend line of the channel, which is around 5600. Progress towards some kind of resolution of the Iranian conflict could help decide where the ultimate bounce will be.
While the start of the last major rally benefited from bullish divergence, this current dip is occurring with bearish divergence. The Relative Strength Index (RSI) at the bottom of the chart shows a steady decline since Q1 2024, while price action has generally moved upwards.
BTC price heading to top of bear flag?
Nevertheless, the purple lines delineate the bottom and top of a bear flag. A higher top would put price nearly at the top trend line of the bear flag. Given that all the short-term stochastic RSI indicators are starting to top out, it is very possible that price will fall back from the top of the flag as upward momentum wanes.
RSI channels are great barometer for price action in daily time frame
RSI breakouts in weekly time frame accurately predict rallies
In the weekly time frame, the Relative Strength Index (RSI) is again a very useful tool, and in this higher time frame, it is even more significant. It can be observed that in the prior two large patterns, each breakout of the RSI trend corresponded with the start of a huge rally.
The trend line that the current indicator line is moving on is not quite as perfect as the prior two. However, it may be good enough, and it is showing that a breakout is imminent. This breakout will occur if the price action above continues to move upwards.
Looking back at the large rallies of the past 3 bull cycles, RSI breakouts foreshadowed all of them. As long as this breakout does occur, it will point to a matching rally in price action. What would stop it? If the indicator line does not break out but is rejected, it could mean that it needs weeks or even months before it is ready to break out again. Definitely something to keep an eye on.