Bitcoin looks primed for a minor rally, having defended a key moving average support in the last 72 hours.
The 50-day moving average (MA), one of the most widely tracked technical indicators, was put to test in the previous two trading days. However, on both occasions, prices failed to penetrate the MA support by the daily close (as per UTC), signaling bearish exhaustion.
Today, BTC is following a similar pattern. The leading cryptocurrency picked up a bid around the 50-day MA support of $6,938 earlier today and rose back above $7,000, raising prospects of a corrective rally.
At press time, BTC is changing hands at $7,050 on Bitfinex – up 0.70 percent on a 24-hour basis.
The solid defense of the 50-day MA support and the early signs of bullish reversal, as seen in the short-duration chart below, indicate scope for a stronger rally toward $7,400.
The above chart shows, the current 4-hour candle is hovering above the top end (resistance) of the falling channel (bearish pattern).
A bullish breakout would be confirmed if the candle closes above the falling channel hurdle. In this case, BTC will likely rise toward the downward sloping (bearish) 100-candle MA, currently located at $7,438.
This scenario appears likely as a bullish divergence of the relative strength index (RSI) signals that the tide has turned in favor of a rally.
BTC created a bearish outside-day candle yesterday, meaning the day began with optimism and ended with pessimism. Still, BTC's strong showing today backs up indications of bearish exhaustion seen yesterday.
While there is a reason to be optimistic, the bulls can't afford to lower their guard as the 5-day MA and 10-day MAs are still biased toward the bears.
If prices close today (as per UTC) below $6,847 (low of the previous day's bearish outside-day candle), the sell-off from the July high of $8,507 would resume, sending BTC below the rising trendline.
- BTC looks set to take out the falling channel resistance and could rise toward $7,400 in the next 24 hours, courtesy of the bear failure at the 50-day MA support and the bullish RSI divergence.
- BTC risks a deeper drop below $6,700 (rising trendline support) if prices find acceptance below $6,847 (previous day's low) today.
Disclosure: The author holds no cryptocurrency assets at the time of writing.