Bitcoin's (BTC) struggle to build a notable bounce could end if prices beat key resistance above $3,600.
The leading cryptocurrency by market value fell to 15-month lows near $3,200 last week, pushing the 14-week relative strength index (RSI) below 30.00 for the first time since 2015.
So, with bitcoin so extremely oversold, a recovery rally cannot be ruled out – more so because there is evidence of bargain hunters challenging the bears’ resolve to push prices lower.
For instance, BTC posted a three-day candle on Dec. 8 that closed below support at $3,463 (low of multiple three-day candles in September 2017), bolstering the already bearish technical setup. Despite that, BTC not only avoided a drop to $3,000 in the last 72 hours but also hit a high of $3,633, if briefly.
Nevertheless, the fact that prices were able to defy the bearish setup indicates that the bulls are beginning to flex a little muscle.
Therefore, a stronger rally could unfold if prices manage to cross the newfound resistance of $3,633 in the next 48 hours or so.
As of writing, BTC is trading at $3,414 on Bitstamp, having clocked a low of $3,325 earlier today.
As seen above, bitcoin has charted an “inverted hammer” candle, which occurs when prices see a brief rally during a downtrend. It is widely considered a sign of potential trend reversal.
The bullish reversal, however, would be confirmed if the follow-through is positive, that is, the current 3-day candle needs to close above $3,633 on Friday.
That could see prices open up upside toward the psychological resistance of $4,000.
On the daily chart, the 14-day RSI has posted a higher low as opposed to the lower low on price, meaning the indicator is diverging in favor of the bulls.
However, again, a high-volume move above $3,633 is needed to confirm a short-term bullish reversal.
- A convincing move above $3,633 would validate the inverted hammer candle seen in the 3-day chart and open the doors for a stronger corrective rally to $4,000.
- A break above $3,633 would also confirm a bullish divergence of the 14-day RSI and open up upside on the daily chart toward $4,400 (Nov. 29 high).
- A break below the recent low of $3,210 would reinforce the overall bearish view, although oversold conditions on the 14-week RSI could limit the downside around $3,000.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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