Bitcoin price is showing weakness after another sharp rejection from the $11,000 resistance level. As Bitcoin (BTC) enters the fourth quarter, the sentiment around the market remains generally cautious and neutral.

Bitcoin might face a larger pullback in the fourth quarter due to several key factors. Throughout the past three years, every September monthly candle has closed red. The September monthly candle for 2020 is also on track to close as a red candle, indicating a lack of direction.

From March through August, favorable financial conditions, a low-interest-rate environment and a multitrillion-dollar stimulus package caused Bitcoin and stocks to rally in tandem. In the upcoming months, due to the United States presidential election in November, the probability of a delayed stimulus approval is increasing. The growing uncertainty around the macro landscape and the financial markets in the U.S. could pressure BTC.

Traders are generally cautious in the short term and optimistic in the medium to long term. Technical analysts have identified key price levels for BTC as $9,800, $10,700 and $11,800. As long as Bitcoin remains in between either the $9,800–$10,700 or $10,700–$11,800 ranges, low volatility is expected. As such, while traders are cautious around the near-term trend of Bitcoin, many do not foresee a large drop.

As a potential area of interest, traders are considering the $9,600 CME gap that forms when Bitcoin price rises or falls below the CME Bitcoin futures market price after it closes for weekends or holidays. The $9,600 gap has yet to be filled, and given the tendency of most CME gaps to get filled, the level remains a target.

A short-term bearish structure

The monthly candle of Bitcoin is expected to close below $11,000, which would confirm a red candle for the month of September. In technical analysis, if a new candle closes below the closure of the previous, it’s called a “bearish engulfing.”

Additionally, Bitcoin’s monthly close would come after repeated rejections, as since Aug. 17, BTC has recorded four consecutive lower highs on the daily chart. A lower-high formation emerges when the latest peak is below the previous peak. In this instance, Bitcoin peaked at $12,468, $12,050, $11,179 and $10,950, respectively.

Bitcoin faces two bearish technical patterns and structures on the monthly and daily charts. The two time frames are considered high time-frame charts in technical analysis, which could raise the probability of a short-term pullback.

The price of Bitcoin briefly broke out of the $10,800 resistance level on Sept. 28. but a pseudonymous trader known as “Byzantine General” said it was most likely a bull trap. BTC rose to as high as $10,950 across major exchanges but was “hugging” the resistance level. When BTC struggles to cleanly break out of a key resistance level, the chance of a bull trap is high.

Quick tip.

When $BTC consolidates just above support and keeps hugging it, it’s almost always a bull trap.
Especially when the consolidation slopes downward.

When bitcoin breaks out, it usually blasts away and doesn’t give anyone a chance to get in. pic.twitter.com/LQZtf6P6lB

— Byzantine General (@ByzGeneral) September 29, 2020

Bitcoin’s recent fall from $10,950 signifies rejections at the monthly, daily and hourly time frames, as they demonstrate cautious/bearish structures in the short term. When that coincides with a monthly candle closure, it could amplify a near-term downtrend.

Historical performance of BTC in the fourth quarter

The historical performance of BTC suggests a downtrend, as during the past two consecutive quarters, BTC recorded 42.46% and 13.59% drops, respectively. Given the tendency of BTC to underperform in the last quarter in the previous two years, the chances of a slow fourth quarter remain high.

However, after undergoing a halving in 2016, BTC had a positive fourth quarter, recording an increase from $613.98 to $998.33. BTC is currently in a post-halving cycle, and if it follows past trends, it could see a gradual climb over the next 12 months. In the 2016 halving cycle, BTC took 15 months to peak at $20,000, which has remained an all-time high.

An uncertain financial market

In the past month, the U.S. stock market has continued to slump due to the COVID-19 pandemic. The concerns surrounding a second wave have been amplified by the lack of stimulus and the uncertainty around vaccines. A stimulus package would alleviate pressure from the economy and distribute direct checks to individuals, raising the overall liquidity in the market.

However, Bitcoin, gold, stocks and risk-on assets are entering the fourth quarter without stimulus and with surging COVID-19 cases, and due to the election in November, Washington has been in a stimulus stalemate. House Democrats are reportedly preparing a $2.4 trillion stimulus proposal with direct payments. Whether it would be approved before the presidential election remains uncertain

Investor confidence has remained low throughout September, as a result. According to Bank of America, investors withdrew $25.8 billion from the stock market last week. This marked the biggest single-week outflow since June 2019 when trade-war fears raged. In a note, strategists at Bank of America cited the lack of clarity on the stimulus as a catalyst for the outflows, stating: “With the biggest fiscal stimulus behind us and without explicit MMT hard for policy to catalyze big upside for stocks and credit next 6 months given starting valuations.”

Although Bitcoin has increasingly decoupled from stocks and has shown more correlation with gold, it remains generally affected by the broader financial market’s sentiment. Speaking to Cointelegraph, Denis Vinokourov, head of research at crypto exchange and broker Bequant, said macro and political developments have been driving cryptocurrencies:

“Macro and political developments have become an increasingly important driver of sentiment across all markets, and digital assets are no exception. The uncertainty surrounding elections in the US is widely expected to result in plenty of volatility. Spillover risks are seen as high but what is interesting is that implied volatility for Bitcoin and Ethereum has remained well anchored even in spite of the lacklustre spot markets price action.”

On-chain indicators are positive

Since June, on-chain indicators have continuously indicated a bullish uptrend for Bitcoin. Various on-chain indicators — ranging from whale activity, HODLing activity, address activity, hash rate and dormant supply — signal a healthy accumulation phase for Bitcoin.

For instance, Glassnode chief technical officer Rafael Schultze-Kraft cited the “Bitcoin Short Term Holder MVRV” to suggest that BTC is at a pivotal point. He said that the on-chain indicator suggests a trend reversal when it hits 1. The last time it hit 1 was in March when BTC recovered from a steep correction to $3,600. Kraft said:

“#Bitcoin STH-MVRV Ratio has been above one since April. Currently testing the support line at 1 (indicative for trend reversals) — short term holders are valuing $BTC at its realized price. #Bullish as long as we hold this level.”

Soona Amhaz, general partner at Volt Capital, referred to the address activity of the Bitcoin blockchain to pinpoint a healthy sentiment, saying it indicates substantive user growth. Overall, technical structures point toward short-term weakness and a longer-term accumulation phase. The uncertainty in the financial markets could intensify the selling pressure on BTC in the foreseeable future, but on-chain metrics depict a healthy, gradual growth rate for the network.