Bitcoin Struggles to Build Momentum After Defense of $7.4K Price Support

Omkar Godbole
Jun 6, 2019 at 11:00 UTC
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  • Bitcoin is struggling to produce a stronger price bounce, despite the defense of the 4-hour chart’s 200-candle moving average – a sign of buyer exhaustion.
  • A bear flag breakdown on the 4-hour chart, if confirmed, would open the doors to levels below $7,000. The daily chart continues to call a move lower to the 50-day price average, currently at $6,861.
  • A minor rally to the $8,200–$8,300 range could be seen if the 4-hour 200-candle average at $7,568 again restricts downside.
  • A UTC close above the downward sloping (bearish) 10-day MA at $8,284 would invalidate the short-term bearish setup.

A key technical line applied the brakes to bitcoin’s (BTC) price sell-off earlier this week, but so far the bounce has been shallow, with upside capped around $7,900.

The leading cryptocurrency by market value began the week on a negative note with prices dropping 7 percent on Monday. The sell-off was extended Tuesday with prices hitting a 2.5-week low of $7,432.

The drop below the widely followed 4-hour chart’s 200-candle moving average (MA), then located at $7,970, was short-lived, with prices recovering to $7,900 by the early European trading hours on Wednesday.

The bounce, however, has stalled near $7,900 over the last 24 hours. The cryptocurrency’s inability to produce a stronger corrective rally despite the defense of crucial support validates buyer exhaustion signaled by last week’s doji candle.

Further, the price recovery seems to have taken the shape of a bearish continuation pattern on short duration technical charts. So, prices may end up falling back to the 200 candle MA support, currently at $7,568.

At time of writing, BTC is changing hands at $7,810, representing a 0.20 percent gain on a 24-hour basis.

4-hour chart

BTC has created a bear flag on the 4-hour chart. Acceptance below the lower edge of that pattern, currently at $7,700, would confirm a flag breakdown – a continuation pattern that usually accelerates the preceding bearish move.

This type of breakdown is usually followed by a move downwards of roughly the length of the flag’s “pole” (the height of the preceding bear move) – in this case from $8,834 to $7,432, a drop of over $1,000.

So, a flag breakdown below $7,700, if confirmed, would theoretically create room for a drop toward $6,800.

The probability of BTC breaking the flag to the lower side is high, as the 50-candle MA is now trending south, indicating a bearish setup, and looks set to cross below the 100-candle MA (bearish crossover).

Daily chart

The daily chart is biased bearish, with the 5- and 10-day MAs sloping downwards, the relative strength index (RSI) reporting a bearish divergence and a violation of the ascending trendline representing the rally from December lows.

What’s more, prices closed below the crucial 30-day MA on Tuesday, confirming a bearish reversal and have struggled to post big gains above the former support-turned-resistance ever since.

So risks are skewed to the downside with scope for a drop to the 50-day MA support, currently at $6,861, in the short-term.

The drop to toward the 50-day MA, however, could be preceded by a rally to the $8,200–$8,300 range – that’s if the 4-hour chart 200-candle MA at $7,568 again holds ground and fuels a price bounce above $8,000.

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

Bitcoin image via CoinDesk Archives; 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.