Bitcoin's (BTC) stalled recovery rally could kick off again if prices manage to beat new resistance above $4,600.
The leading cryptocurrency by market valuation picked up a bid after hitting 14-month lows near $4,000 on Wednesday, possibly due to record oversold conditions reported by the 14-day relative strength index (RSI).
The corrective rally, however, seems to have run out of steam as the cryptocurrency is currently trading at $4,460 on Bitstamp – down 3.78 percent from the high of $4,635 seen yesterday.
That said, the probability of a fresh sell-off is low, as the RSI on both the daily and 3-day charts is still reporting oversold conditions.
Meanwhile, the odds of BTC extending the recovery rally would improve substantially if prices clear $4,635 – the high of yesterday’s “bullish inside-day” candle – a widely followed pattern that represents an indecisive market.
An inside-day candle occurs when BTC's daily price range falls within the price range of the previous day.
As seen above, yesterday's price range (high minus low), as represented by the green candle, falls within the trading range witnessed on Tuesday.
With an inside-day candlestick considered a sign of indecision, the market could see either trend reversal or trend continuation afterwards.
Accordingly, an inside-day bullish reversal would be confirmed if BTC finds acceptance above yesterday's high of $4,635 in the next 48 hours or so, while a break below the previous day's low of $4,242 would imply bearish continuation.
That said, BTC is more likely to witness a bullish reversal, as the candlestick pattern has appeared at the bottom of the recent sell-off and more importantly, the RSI is still signaling oversold conditions.
The current oversold status of the cryptocurrency means that a bearish continuation could turn out to be a short-term bear trap.
It is worth noting that the 5- and 10-day exponential moving averages (EMAs), currently located at $4,722 and $5,103, respectively, are still trending south. As a result, BTC may have a hard time holding on to gains above the psychological hurdle of $5,000.
- An inside-day bullish reversal could be seen in the next day or two. The immediate upside, however, could be capped around $5,000.
- An inside-day bearish continuation could turn out to be a bear trap, as the cryptocurrency is still looking oversold.
- A weekly close below $4,182 (200-week EMA) would revive the bearish view and open up downside toward the next major support located at $3,100 (200-week simple moving average).
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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