Bitcoin's (BTC) sharp recovery from two-week lows hit yesterday has raised the odds of a stronger rally towards $6,400, technical studies indicate.
As of writing, the leading cryptocurrency is changing hands at $6,245 on Bitfinex.
BTC was expected to drop below $6,000 in the last 24 hours as the bears were on the offensive following an inverted flag breakdown.
However, the intraday oversold conditions likely put a floor under bitcoin prices at the two-week low of $6,080, helping it chart a solid rebound to $6,283 (today's high).
While it is too early to call a bullish reversal, the change of fortune has saved the day for the BTC bulls. Moreover, the probability of BTC's price charting a picture-perfect inverse head-and-shoulders bullish reversal pattern would have dropped sharply had BTC found acceptance below $6,000.
The above chart shows BTC created a falling wedge pattern over the last four days, as represented by lower highs and lower lows. Prices crossed the wedge resistance yesterday with strength (backed by a pick-up in volume), signaling the pullback from Monday's high of $6,820 has ended.
The falling wedge breakout also validated the bear-to-bull trend change indicated by the bullish price-relative strength index divergence (higher low on the RSI).
So, BTC will likely find acceptance above the immediate resistance $6,270 (50-hour moving average) and rise towards the descending 100-hour MA, currently located at $6,404.
While the hourly chart has adopted a bullish bias, the daily chart is still biased to the bears, so the bulls are cautioned against being too ambitious.
The 5-day and 10-day MA are trending south, implying a bearish bias, while the relative strength index (RSI) is holding below 50.00, also indicating the bears are in control.
BTC could attack the $6,400 mark, but further gains are ruled out for now as the descending (bearish) 5-day MA and 10-day MA are located at $6,366 and $6,500, respectively.
That said, if BTC manages to close (as per UTC) today above 10-day MA, then the doors would open for a re-test of the Monday's high of $6,820.
Bearish scenario: A failure to produce a significant move higher despite the bullish price RSI divergence and the falling wedge breakout would shift risk in favor of a drop to a recent low of $5,755. The downside move will likely gather pace if BTC fails to hold above $6,080 (previous day's high) over the weekend.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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