Having defended $6,000 last week, bitcoin (BTC) appears to be building momentum for a price rise, but nearby technical hurdles still present a formidable challenge.
At press time, the world's most valuable cryptocurrency is changing hands at $6,689 on Bitfinex and looks to be gaining steam for another test of $6,838. As such, the level is shaping up to be a make-or-break mark, one that could reveal if a classic trend reversal pattern, known as the inverse head-and-shoulders, will take effect.
Indeed, a close above that level would amount to a short-term bearish-to-bullish trend change and open doors for a rally to $7,900 (a target measured by adding the distance from the resistance to the recent low with the break-out level).
So, while the bulls may feel emboldened by a possible inverse head-and-shoulders breakout, they are cautioned against being too ambitious. The area between $7,000 - $7,100 hosts more relevant technical hurdles that need to be penetrated in order to prove the bull case.
Obstacle #1: 0.236 Fibonacci Retracement and Inverse Head-and-Shoulders Neckline
Bitcoin has failed to absorb offers (supply) around $6,850 several times since June 11th, establishing it as a key technical hurdle. (Traders use a tool called the Fibonacci retracement to identify support and resistance levels).
Interestingly, the 0.236 Fibonacci retracement from May high of $9,900 happens to be in the same area, according to Bitfinex Exchange.
While bulls would have liked to breach resistance on an earlier attempt, the consistent rejection is allowing for an inverse head and shoulders reversal pattern to take form.
A convincing break would confirm the inverse head and shoulder reversal, shifting short-term trend into bullish favor.
Bitcoin would then likely attack long-term trendline resistance located at $7,050, as seen in the chart below.
Obstacle #2: Long-Term Downtrend Resistance
It's no secret that bitcoin has been in a commanding bear grip since reaching its all-time high of $19,891 in December of 2017, a picture painted by the long-term downtrend line seen in the chart below.
If the inverse head-and-shoulders pattern takes form, the trendline of resistance would likely be tested in the following hours or days.
For a comparable view in bitcoin history, the infamous 2014 bear market formed a similar market structure:
The market finally rebounded after a break and finding support on the downtrend line on Aug. 25, 2015.
A convincing break and close above of the current downtrend would carry strong bullish implications surely to shift the intermediate term trend into bullish favor - opening the doors for a move to $7,900 (as per inverse head-and-shoulders measured height method).
A rejection from the trendline would likely give an edge back to the bears.
Outlier: An ETF rejection
Looking down the line, August will be a month every cryptocurrency investor pays close attention to, as the SEC will make a decision regarding the recent CBOE ETF proposal.
An approval would be a historic event, as it would open the doors for much awaited institutional investment - a potential inflow of funds bitcoin has never seen before. With that said, another ETF rejection could be just enough of a momentum killer to return bitcoin's trend into bearish hands.
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