The price of bitcoin appears to be stabilizing.
Amid what has been a wild weekend in the crypto markets, BTC is now down just 5 percent in the last 24 hours to a value of $6,102. Yet, that number doesn't tell the whole story, as the cryptocurrency has been in the midst of heavy volatility after hitting a near three-week low below $5,600 earlier today.
As the charts show, the record rally from the September lows below $3,000 now appears to have topped out at $7,850 last week after a decision to abandon a controversial software upgrade triggered an unwinding of trading positions. The move appears to be sparking a migration of funds to alternative protocols, with bitcoin cash emerging as the primary beneficiary – effectively tripling in price since Thursday.
So, the question now is, how low can prices go?
If history is any guide, the current sell-off in bitcoin is likely to run out of steam below $5,000.
Case I: Rally from July low to September high
Case II: Rally from April low to June high
It is quite clear that:
- The rally ends with a bearish price RSI divergence.
- The sell-off comes to a halt around the 61.8 percent Fib and below the 100-day MA.
Where is the floor?
The current retreat in prices looks similar to Case I and Case II as the rally ended with a bearish price RSI divergence.
The RSI is trending lower and well short of the oversold territory. Thus, there is potential for a continued sell-off.
The sharp recovery from the 50-day MA seen today indicates bitcoin could trade sideways for the next couple of days before resuming the drop.
As historical data shows, the current sell-off is likely to leave a major higher low around the 61.8 percent Fibonacci retracement ($4,855.59) and below the 100-day MA ($4,818). Over the next few days, the 100-day MA is seen sloping upwards to $5,000-$5,100 range.
- Prices could trade sideways over the next few days.
- The current sell-off could come to a halt around $4,900-$5,000.
- Only a multiple 1-hour closes above $6,500 would warrant caution on the part of the aggressive bears.
Price action discussed below could be considered as a sign of a bullish trend reversal:
- A solid rebound from near 100-day MA & 61.8% Fibonacci retracement (as history suggests) or
- The prices close today around $6,200 and tomorrow's candle ends beyond $6,900.
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