Bitcoin's (BTC) bears would be put on the back foot if prices climb past key resistance lined up at $4,140.
Notably, the break above $4,000 has added further credence to the short-term bearish-to-bullish trend change signaled by the three-day chart on Dec. 20.
The job, however, is only half done for bulls, as prices are yet to take out the resistance at $4,140 – the neckline of the inverse head-and-shoulders bullish reversal pattern. A convincing break above that level would put the bulls back into the driver's seat.
That said, a longer-term bullish reversal would be confirmed only above the former support-turned-resistance of the 21-month exponential moving average (EMA) of $5,567.
As of writing, BTC is changing hands at $4,000 on Bitstamp, representing a 5 percent gain on a 24-hour basis.
As seen above, BTC has charted an inverse head-and-shoulders pattern, which represents a transition from the bear market to the bull market – a low followed by recovery (left shoulder), a bearish-lower low and recovery (head), and finally a bullish-higher low and recovery (right shoulder).
A breakout from an inverse head-and-shoulders usually yields a powerful move to the upside. BTC, therefore, could rise well above $5,000 (target as per the measured move method) if the neckline resistance, currently seen at $4,140, is crossed on the back of high trading volumes.
Further, the cryptocurrency has found acceptance above the 50-day moving average (MA) hurdle, while the 5- and 10-day MAs are trending north, indicating a bullish setup. The 14-day relative strength index (RSI) is also biased toward the bulls.
Hence, prospects of a bull breakout above $4,140 appear high.
On the monthly chart, the outlook remains bearish while BTC is trading below the 21-month EMA of $5,567. Interestingly, the trendline connecting the December 2017 and November 2017 highs is also located near the 21-month EMA.
Forcing a long-run breakout, therefore, is going to be an uphill task for the bulls – more so, as both the 5- and 10-month EMAs are still trending south, indicating a bearish setup. As a result, these averages – currently are located at $4,791 and $5,651, respectively – could work as stiff resistance levels.
- An inverse head-and-shoulders breakout, if confirmed, would signal a major bullish reversal and could yield a quick move to the psychological hurdle of $5,000.
- A break above the 21-month EMA of $5,567 could see in a long-run bullish breakout.
- Failure to take out the neckline resistance of $4,140, if followed by a break below $3,566 (low of the right shoulder), will likely embolden the bears and allow re-test of the recent low of $3,122.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.