The bitcoin bull market may be reaching a point of exhaustion.
After the cryptocurrency printed a fresh record high of $7,454.05 on Coindesk’s Bitcoin Price Index (BPI) earlier today, BTC has failed twice to hold above $7,400 mark.
The price action, when viewed on the technical chart, shows a “textbook” bull market exhaustion pattern – the first legitimate sign of a tired market after days of solid rally.
The chart above shows:
- Doji candle formed at previous record high.
- Overbought RSI.
- Potential bearish doji reversal and bearish price-relative strength index (RSI) divergence.
Formed when the open and close for a stock or tradeable asset are virtually the same, a doji candle is a neutral pattern, often read as a sign of exhaustion if it occurs at the top or bottom of the trend. On the chart above, the doji candle has appeared at the record high, suggesting the possibility of bull market exhaustion.
However, only a bearish follow-through (next candle is negative) would signal bullish-to-bearish trend change. A bearish doji reversal would be confirmed if the current 4-hour candle ends with losses (i.e. is red).
The story doesn’t end here, though. A bearish price RSI divergence would be confirmed as well, if the current 4-hour candle is red. Bearish price RSI divergence occurs when prices print higher highs, while the RSI prints lower highs.
On the above chart, we see higher highs on the price chart: $7,445 (yesterday’s high) and $7,450 (today’s high), yet, the RSI is yet to confirm a lower high. If the current 4-hour candle drops into the red, the RSI would form a lower high and thus, a bearish price-RSI divergence would be confirmed.
- Confirmation of the bearish doji reversal and bearish price RSI divergence could yield a much needed healthy correction to the $6,700–$6,400 range.
- The bull run may resume if prices consolidate around $7,400 levels over the next 24–48 hours.
Burnout image via Shutterstock