Bitcoin's Rejection at Key Price Hurdle Puts Short-Term Bull Trend at Risk

Bitcoin experienced a strong rejection at key resistance Wednesday, weakening the short-term bullish outlook.

The top cryptocurrency by market value quickly jumped from $7,200 to $7,800 during the U.S. trading hours on Wednesday, ending a low-volume pullback, as expected. The ascent, however, was short-lived, and prices fell back just as speedily – closing the day (UTC) with a 1.4 percent loss at $7,198, according to Bitstamp data.

The sharp move lower from $7,800 – a level that proved a tough nut to crack at the end of November – has increased the likelihood of bearish price action with the formation of a candlestick pattern called an "inverted hammer."

While the pattern is considered a bearish signal, traders usually wait for confirmation in the form of strong follow-through, preferably a convincing move below the low of the candle.

Put simply, a break below Wednesday's low of $7,087, if confirmed, will likely attract strong selling pressure, possibly leading to a deeper drop.

At press time, bitcoin is changing hands at $7,330, representing a 1.4 percent gain on a 24-hour basis.

The long upper shadow attached to the inverted hammer candle represents "sell on the rise" mentality.

So far, there's been no bearish follow-through. However, that does not mean the path of least resistance is to the higher side, as the cryptocurrency is also held below the resistance of a descending trendline sloping downwards through the Oct. 26 and Nov. 15 highs.

A bullish reversal would only be confirmed if and when the cryptocurrency finds acceptance above $7,870 (Nov. 29 high), invalidating the lower-highs setup.

If prices find acceptance under $7,087 (inverted hammer's low), that would imply a continuation of the sell-off from $7,870 and will likely yield a re-test of recent lows near $6,511.

Bitcoin charted a bullish hammer reversal pattern in the six days to Nov. 29. So far, however, the follow-through has been anything but bullish, and has faced strong rejection at $7,800, as noted above.

As a result, the immediate outlook is neutral.

Other indicators continue to call a bearish move. For instance, the 14-day relative strength index (RSI) remains below 50 and the 5- and 10-week moving averages continue to trend south.