- Bitcoin's minor recovery rally from six-week lows could be extended further to levels above $3,500 as back-to-back long-tailed daily candles are indicating a lack of conviction among sellers, despite Monday's high-volume range breakdown.
- A break above the downward sloping 10-day MA of $3,511 would expose the crucial resistance of $3,658 (the high of Saturday's gravestone doji and last week's classic doji candle). The outlook would turn bullish if BTC secures a convincing UTC close above $3,658.
- Rejection at the 10-day MA would reinforce the primary bearish trend and could yield a quick drop to the December low of $3,122. On the way lower, BTC may find support at the 200-week moving average of $3,298.
Bitcoin (BTC) has recovered slightly from six-week lows seen yesterday and could see a short-term corrective bounce to $3,500.
The leading cryptocurrency is currently trading at $3,416 on Bitstamp, having hit a low of $3,322 on Tuesday – a level last seen on Dec. 17.
With the minor rally, however, those RSIs have moved back to undersold territory and are now in line with the bearish view put forward by a convincing break below $3,500 seen on Monday.
Even so, the drop to December lows near $3,100 may not happen immediately as stronger signs of temporary bearish exhaustion have emerged on the longer duration charts.
Daily and 4-hour chart
As seen above, BTC has reported losses in the last five trading sessions – the longest losing streak since mid-November.
Notably, the ascending triangle breakdown on the 4-hour chart confirmed on Monday signaled a resumption of the sell-off from the Jan. 10 high of $4,036. The 5- and 10-day MAs are trending south and the 14-day RSI is reporting bearish conditions with a sub-50 reading.
So, the doors look to have been opened for a drop to December lows near $3,100.
The cryptocurrency, however, may test bears’ resolve by rising to the bearish 10-day MA of $3,511, as the long-tails attached to the previous three daily candles signal a lack of conviction on the part of the bears.
A long-tailed candle occurs when there is a big gap between the daily low and UTC close, that is, when sellers fail to secure a close near the lowest point of the day.
The bullish divergence of the RSI and the falling channel breakout indicate the sell-off from the high of $3,658 has likely paused. BTC, therefore, could rise to $3,500 and above.
The outlook, however, will remain bearish as long as BTC is held below $3,658 (the high of Saturday’s bearish reversal candle).
Disclosure: The author holds no cryptocurrency at the time of writing.
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