Bitcoin Is Closing on Historically Strong Price Support

Bitcoin is still feeling bearish pressure and could soon drop to historically strong price support below $7,100.

The cryptocurrency fell 1.7 percent on Tuesday, reinforcing the bearish view put forward by the strong rejection above $7,600 witnessed over the weekend.

The longer term picture is also looking bleak. Bitcoin is currently down 48 percent from the June high of $13,880 and is reporting nearly a 13 percent drop on a quarter-to-date basis, according to Bitstamp data.

With the sellers in control, bitcoin looks set to re-test the 21-month exponential moving average (EMA), currently at $7,097. The EMA had acted as strong support in the five months to October 2018, as seen below. 

Bitcoin’s sell-off from the record high of $20,000 reached in December 2017 ran out of steam at the 21-month EMA support in June 2018.

In the following four months, sellers repeatedly failed to secure a monthly close below the average line. By mid-October, many were convinced that the cryptocurrency had bottomed out along the key level. 

Buyers, however, remained elusive and the average support, then located around $6,100, was convincingly breached in mid-November with high volumes. The violation of the support likely triggered stops on long positions, leading to a violent sell-off. 

Clearly, the 21-month EMA, currently at $7,097, is the level to watch out for in the near-term – more so, as the bears have recently struggled to breach the support.

The long-tail attached to October’s candle indicates sellers faded near the 21-month EMA line. 

Prices did print lows below the crucial support last month, but the support remained intact on a monthly closing basis (Nov. 30, UTC). 

December’s candle has already briefly defended the support. A week ago, the technical line held ground resulting in a price bounce that fizzled out at highs above $7,660 on Dec. 9. 

If the EMA continues to restrict losses, chart-driven buying could be seen, leading to a notable price bounce. 

That said, the short-term outlook will turn bullish only above $7,870. At press time, bitcoin is changing hands at $7,200 on Bitstamp.

A UTC close above the Nov. 29 high of $7,870 would invalidate the lower-highs setup on the daily chart (above left) and confirm a short-term bullish reversal. 

However, the odds are currently stacked in favor of a move lower, as suggested by Monday’s "outside day" candle and Tuesday’s bearish follow-through. 

A break below the 21-month EMA support at $7, 097 will likely yield a decline to recent lows near $6,500. 

The long-term outlook would turn bullish if and when the cryptocurrency witnesses a falling channel breakout on the weekly chart.