Bitcoin’s (BTC) bears would be put on the back foot if prices climb past key resistance lined up at $4,140.
Notably, the break above $4,000 has added further credence to the short-term bearish-to-bullish trend change signaled by the three-day chart on Dec. 20.
The job, however, is only half done for bulls, as prices are yet to take out the resistance at $4,140 – the neckline of the inverse head-and-shoulders bullish reversal pattern. A convincing break above that level would put the bulls back into the driver’s seat.
That said, a longer-term bullish reversal would be confirmed only above the former support-turned-resistance of the 21-month exponential moving average (EMA) of $5,567.
As of writing, BTC is changing hands at $4,000 on Bitstamp, representing a 5 percent gain on a 24-hour basis.
As seen above, BTC has charted an inverse head-and-shoulders pattern, which represents a transition from the bear market to the bull market – a low followed by recovery (left shoulder), a bearish-lower low and recovery (head), and finally a bullish-higher low and recovery (right shoulder).
A breakout from an inverse head-and-shoulders usually yields a powerful move to the upside. BTC, therefore, could rise well above $5,000 (target as per the measured move method) if the neckline resistance, currently seen at $4,140, is crossed on the back of high trading volumes.
Further, the cryptocurrency has found acceptance above the 50-day moving average (MA) hurdle, while the 5- and 10-day MAs are trending north, indicating a bullish setup. The 14-day relative strength index (RSI) is also biased toward the bulls.
Hence, prospects of a bull breakout above $4,140 appear high.
On the monthly chart, the outlook remains bearish while BTC is trading below the 21-month EMA of $5,567. Interestingly, the trendline connecting the December 2017 and November 2017 highs is also located near the 21-month EMA.
Forcing a long-run breakout, therefore, is going to be an uphill task for the bulls – more so, as both the 5- and 10-month EMAs are still trending south, indicating a bearish setup. As a result, these averages – currently are located at $4,791 and $5,651, respectively – could work as stiff resistance levels.
- An inverse head-and-shoulders breakout, if confirmed, would signal a major bullish reversal and could yield a quick move to the psychological hurdle of $5,000.
- A break above the 21-month EMA of $5,567 could see in a long-run bullish breakout.
- Failure to take out the neckline resistance of $4,140, if followed by a break below $3,566 (low of the right shoulder), will likely embolden the bears and allow re-test of the recent low of $3,122.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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