$8,000? It's not out of the question.
With no price pullback happening in the wake of Tuesday's sudden surge, the technical charts indicate bitcoin could soon close in on this key psychological benchmark.
First, an expected pullback was not without merit (the charts were looking overextended on Tuesday when the 4-hour RSI reached its highest level since 2016), but since Wednesday, the world's largest cryptocurrency has largely consolidated gains in a narrow range between $7,246 and $7,588.
As the trading range tightens and the technical indicators regain composure, the probability of bullish continuation increases. At press time, the CoinDesk Bitcoin Price Index shows bitcoin is changing hands at $$7484.06 up 0.18 percent on a 24-hour basis.
Bitcoin (BTC) has been in a clear consolidation mode since the conclusion of Tuesday's rally, but the daily bias remains bullish. Price is sitting comfortably above the inverse head-and-shoulders neckline ($7,838) and three of the four important exponential moving averages (EMAs) are trending positively – maintaining the bullish view.
The 12-day and 50-day EMAs are nearing a bullish cross while the 100-day EMA is beginning to curve upward, which implies a bullish setup. What's more, the Chaikin Money Flow (CMF), an indicator used to measure buy and sell pressure, is still printing levels in bullish favor.
A bullish rally will not be an easy feat however since heavy resistance lies in the $7,600-$7,800 range.
The resistance zone includes four strong technical hurdles:
- Prior price resistance (Early June)
- 100-day EMA
- 0.5 Retracement from May high of $9,900
- Prior pennant support turned resistance.
Another reason for bulls to proceed with caution is the RSI approaching overbought conditions. While the RSI (currently 68) is capable of reaching much higher levels (it hit 93 in December 2017), a level of just 70 halted the previous substantial bullish rally in April.
The hourly chart paints a clearer picture of the post-rally consolidation taking place.
What started as choppy hourly consolidation morphed into a pennant-like structure, composed of a "higher-low, lower-high pattern."
The pennant formation (continuation pattern) supplemented by price sitting above all four hourly EMAs and the 0.382 Fibonacci Retracement (from May high), as well as the hourly RSI beginning to trend upwards, creates a rather clear short-term bullish bias.
As the trading range continues to narrow, the closer BTC is to a breakout. A bullish rally would first likely test the larger pennant resistance (blue line) followed by the upper boundary of the resistance zone mentioned in the daily chart, $7874 (0.5 retracement).
- Bitcoin's consolidation since Wednesday has allowed the overextended short-term indicators to cool off, preparing itself for another move - short-term charts suggest to the upside near $8000.
- If a bearish correction occurs, the rising hourly EMAs should provide a safety net of temporary support.
- The short-term bullish view will only be negated if price finds acceptance below the inverse head-and-shoulders neckline of $6,838.
Article Update: (17:20 UTC)
While publishing this analysis, the hourly pennant pattern shown above broke bullish and the price of bitcoin rose to $7657 (BPI). That said, price harshly rejected from the mentioned larger pennant resistance - now trading at $7383. The higher low pattern is still intact but the price will look to find short-term support on hourly EMAs in case of further breakdown.
Disclosure: The author holds BTC, AST, REQ, OMG, FUEL, 1st, and AMP at the time of writing.