$4K Ahead? Bitcoin’s Low-Volume Price Pullback Could Be a Bear Trap

Omkar Godbole
Jan 4, 2019 at 11:47 UTC
Updated Jan 4, 2019 at 12:07 UTC
markets

Bitcoin’s (BTC) recent pullback from highs above $4,200 could trap the bears on the wrong side of the market, the price-volume analysis indicates.

The leading cryptocurrency by market value is currently trading near $3,848, having clocked a low of $3,642 on Dec. 28. At that level, BTC was down 14.7 percent from the Dec. 24 high of $4,272, according to CoinMarketCap.

Notably, daily trading volumes across all cryptocurrency exchanges have also dropped in the last few days. At press time, 24-hour trading volume stands at $4.57 billion – down 36 percent from the Dec. 24 high of at $7.24 billion.

A low-volume price pullback is widely considered a sign of weak buyers exiting the market and hence is considered insignificant. The recent drop, therefore, is likely a temporary correction and the bearish-to-bullish trend change signaled by the 3-day chart on Dec. 20 is still valid.

The bullish case, however, would weaken if the cryptocurrency dips below the key support near $3,550.

3-day chart

As seen above (prices as per Bitstamp), BTC closed at $4,073 on Dec. 20, confirming a bullish outside-candle reversal (bear-to-bull change).

So far, however, the follow-through has been discouraging. Prices have dropped in the last ten days, but so have volumes.

The bullish reversal, however, would be invalidated if and when the bullish-higher low of $3,566 carved out on Dec. 27 is breached.

6-hour and 1-hour chart

The triangle breakout seen in the 6-hour chart indicates that the rally from the December low of $3,122 has resumed.

Meanwhile, the bull flag breakout seen in the hourly chart indicates a resumption of the rally from the Jan. 1 low of $3,629.

Therefore, the path of least resistance is on the higher side.

Daily chart

On the daily chart, BTC is likely carving out an inverse head-and-shoulders bullish reversal pattern with the neckline resistance at $4,170.

The bullish setup on the 3-day and intraday chart indicates scope for a test of $4,170 in the next few days.

It is worth noting that the 50-day moving average (MA) is still trending south, indicating a bearish setup. As a result, BTC may attract bears if the MA hurdle, currently at $3,900, proves to be a tough nut to crack in the next 48 hours or so.

View

  • Bitcoin’s low-volume drop from the recent highs above $4,200 is nothing more than a temporary correction.
  • BTC remains on the hunt for a break above $4,000. The bulls, however, need progress soon, as repeated failure to take out the 50-day MA of $3,900 could prove costly.
  • A break below the Dec. 27 low of $3,566 would open the doors to re-test of the December low of $3,122.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View

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This article is intended as a news item to inform our readers of various events and developments that affect, or that might in the future affect, the value of the cryptocurrency described above. The information contained herein is not intended to provide, and it does not provide, sufficient information to form the basis for an investment decision, and you should not rely on this information for that purpose. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.