Bitcoin's defense of key long-term support for the second time in four days is a positive sign for a potential recovery rally.
The leading cryptocurrency by market value fell below $4,242 (low of Wednesday's inside-day candle) in the Asian trading hours, putting the bears back into the driver's seat. As a result, BTC fell below the 200-week exponential moving average (EMA) of $4,182 earlier today.
The breach of the EMA support, however, may have trapped the bears on the wrong side of the market, as BTC is currently trading at $4,330 on Bitstamp, having clocked an intraday low of $4,061 earlier today.
The repeated failure to beat the long-term support indicates the bears have likely run out of steam. As a result, a stronger corrective rally could be in the offing.
On the 4-hour chart, the relative strength index (RSI) has created a bullish divergence with higher lows.
As a result, BTC looks set to test $4,635 – the neckline of the double-bottom bullish reversal pattern. A break above that, if confirmed, would open up upside toward $5,100 (target as per the measured height method).
As seen above, the 14-day relative strength index is holding below 30.00 for the ninth day straight, signaling ongoing oversold conditions.
The 5- and 10-day EMAs, currently at $4,546 and $4,933, respectively, are still trending south. Therefore, corrective rallies above the 10-day EMA, if any, could face exhaustion near $5,000.
- Repeated defense of the 200-week EMA likely indicates seller exhaustion. (edited
- A break above $4,635 would confirm a double-bottom breakout on the 4-hour chart and could yield a stronger recovery rally to $5,100.
- A weekly close on Sunday (UTC time) below the 200-week EMA of $4,182 could prove costly, as the next major support is located directly at $3,100 (200-week simple moving average).
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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