Chart of the Day: Bitcoin has recovered, but don't buy the dip yet

After plunging more than 15% in the last three days, it has now recovered. So is the sale over? We don't believe that for various reasons.

The cryptocurrency joined other risk assets such as stocks in a sharp selloff as China's real estate giant Evergrande (HK:) appeared to be on the verge of default. At the same time, , a classic safe haven, rose by 1.5%. In our view, this tempers the assertion of many that Bitcoin could be a replacement for the yellow metal during periods of risk pause.

From a risk perspective, now that China's PBoC has begun pumping liquidity into the country's financial system to avoid post-holiday market turmoil, investors may be encouraged that local regulators would not allow Evergrande to become another Lehman Brothers. This is not a given, as China has recently been desperately trying to counteract excessive speculation in various markets, and the Evergrande debacle is blocking its path.

It remains uncertain whether Beijing will ultimately allow the company - its second-largest real estate developer by revenue - to collapse to send a clear message to other heavily indebted local companies. An additional boost to market sentiment today and risk assets overall was Evergrande's private negotiations with bondholders to pay out the September coupon, keeping a default at market levels.

On Wednesday, at the time of writing, Bitcoin is up 3.8%, rising in tandem with regional stocks and US futures. The cryptocurrency found support at the key level of $40,000.

So why don't we recommend investors buy on this dip? The technical picture says more than a thousand words.

At this point, the digital token's rise is seen as nothing more than a retracement move to retest a completed H&S top, presumably fueled by short covering.

Furthermore, if the price continues to fall below $28,890, a long-term downtrend will have been established.

Trading strategies – setting up short positions

Conservative tradersshould wait for the price to retest the integrity of the neckline, followed by selling that would push the price below $40,000 on a closing basis before going short.

Moderate traderswould also wait for a short, at least with resistance from the H&S top on a closing basis. At the moment the price we are seeing is only on an intraday basis.

Aggressive traderscould short now, assuming they accept the higher risk relative to the higher reward that comes with moving ahead of the rest of the market.

Trading patterns

• Eintritt: $42.400
• Stop-Loss: $43.400
• Risiko: 1.000 $
• Ziel: 37.400 $
• Belohnung: 5.000 $
• Risiko: Belohnungsverhältnis: 1:5