Bitcoin ended a two-week period of consolidation with a drop to six-week lows earlier today.
A prolonged period of consolidation usually yields a big move in the direction of the breakout. For instance, BTC ended a multi-week-long trading range with a move below $6,000 on Nov. 14 and what followed was a violent sell-off to levels below $4,000.
However, the duration of the recent consolidation was shorter than the one seen before the big bearish move of Nov. 14. So, the magnitude of any post-breakdown move would likely be smaller too.
Nevertheless, the latest range breakdown could at least yield re-test of December lows near $3,100, as the primary trend represented by the downward sloping 10-week moving average (MA) is negative.
The bearish case looks even stronger if we take into account the bull failure seen over the weekend. Prices had turned in favor of the bulls with a move to $3,658 on Saturday. That triangle breakout, however, petered out, with prices falling back to $3,500 yesterday. A failed breakout is widely considered a strong bearish signal.
Possibly adding extra downward pressure on prices, safe-haven asset gold – which has been inversely correlated with BTC since November – found acceptance above $1,300 on Friday.
At the time of writing, BTC is changing hands at $3,430, representing a 3 percent drop on a 24-hour basis.
On the daily chart, BTC charted a bearish gravestone doji on Saturday, meaning the day began with a positive move but ended flat on the day.
Adding to the bulls' woes is the negative follow-through as represented by the drop to six-week lows today. The 14-day relative strength index (RSI) is also reporting a range breakdown below 40.00.
So, the path of least resistance looks to be to on the downside, and the bulls will likely feel emboldened only above $3,658 (the high of the gravestone doji).
As seen in the above chart, BTC’s triangle breakout on Saturday was short-lived and the cryptocurrency has now found acceptance under the lower edge of the triangle.
The chart also shows a Bollinger Band breakdown, with a convincing break below the lower band.
The RSI, however, is reporting oversold conditions. As a result, BTC may revisit $3,500 before resuming the drop toward the December lows.
The 10-week MA is still trending south, indicating a bearish setup. There are, however, signs of indecision in the marketplace, as represented by last week’s classic doji candle.
Further, a sustained drop in trading volumes likely indicates bearish exhaustion.
The outlook, therefore, would turn bullish if BTC ends this week above the doji candle high of $3,658.
- BTC risks falling to the December low of $3,122 in the next few days, having confirmed a range breakdown with a drop to six-week lows today.
- A downward move could be preceded by a minor bounce to $3,500, as the RSIs on the 4-hour and the hourly chart are reporting oversold conditions.
- The outlook would turn bullish if the oversold conditions on the 4-hour RSI end up yielding a convincing move above $3,658 (the high of both the gravestone doji and the classic doji).
Disclosure: The author holds no cryptocurrency at the time of writing.
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