Bitcoin (BTC) is looking to regain poise after its drop to two-month lows on Sunday, but the recovery will likely be short-lived, the technical charts indicate.
At press time, BTC is changing hands at $6,825 on Bitfinex – up 3 percent from the two-month low of $6,619.
The recovery could be associated with extreme oversold conditions highlighted by the relative strength index (RSI) yesterday and could be extended further in the next 24 hours.
However, crossing $7,000 in a convincing manner will be easier said than done, as the area around the psychological hurdle is packed with key technical resistance lines. Further, the long duration charts have turned bearish, so holding on to gains above $7,000 will be a challenge for BTC's bulls.
Hence, the recovery could turn out to be a dead cat bounce – a temporary recovery in a bear market that is followed by a resumption of the downtrend.
On the way higher, BTC could face stiff resistance at May 29 low of 7,040 (former support turned resistance). Interestingly, the pennant floor (former support) is also lined up at $7,040.
Further, a key Fibonacci retracement level is located around $7,000, as seen in the chart below.
The 38.2 percent Fibonacci retracement of the latest leg down in prices is $7,008.
What's more, the cryptocurrency is struggling to find acceptance above $6,859 (23.6 percent Fibonacci retracement). The failure to beat a less important Fibonacci hurdle only indicates how tough it could be for bitcoin to scale $7,008 (38.2 percent Fibonacci hurdle).
The bearish moving averages could also complicate the recovery in bitcoin prices. The 50-hour, 100-hour and 200-hour moving averages (MAs) are all trending south indicating a bearish setup.
Meanwhile, the long duration charts are biased to the bears too.
The bearish crossover between the 5-month and 10-month MA also indicates the tide has turned in favor of the bears.
As discussed yesterday, the downside break of the pennant pattern has revived the bear market and opened the doors for a drop below the February low of $6,000. The pennant breakdown also adds credence to BTC's bearish close below the 50-week MA in May.
And, last but not the least, the charts also show there is a lot of space to the downside as a major support is seen directly at $6,000 (Feb low). A violation there would open up downside towards $4,496 (100-week moving average) and $3,300 (trendline drawn from the August 2015 low and March 2017 low).
- A minor corrective rally could be in the offing, but will likely run out of steam above $7,000.
- The broader outlook remains bearish with bitcoin likely to test $6,000 in a week or two.
- Only a daily close (as per UTC) above the 10-day MA, currently seen at $7,376, would abort the bearish view.
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