Bitcoin on the Defensive But May See Bounce at Key Price Support

Bitcoin's short-term prospects are looking bleak, but its close proximity to historically strong price support calls for caution from sellers.

Apr 29, 2019 at 11:05 a.m. UTC
Updated Sep 13, 2021 at 9:07 a.m. UTC
  • Bitcoin is looking south, as per the bearish divergence of the 14-day relative strength index and other short-term technical indicators.
  • A deeper pullback to levels below $5,000, however, would remain elusive if the 30-day moving average (MA), currently at $5,107 holds ground. That average repeatedly limited losses in March.
  • A rebound from the 30-day MA could be followed by re-test of recent highs above $5,600.
  • A UTC close below the 30-day MA would strengthen the short-term bearish case and expose the 50-day MA lined up at $4,649.

Bitcoin's (BTC) short-term prospects are looking bleak, but its close proximity to a historically strong price support level calls for caution on the part of the sellers.

The crypto market leader faced rejection at the bearish (descending) 50-week moving average (MA) last week and ended with a 2.5 percent drop, neutralizing the short-term bullish setup. A similar rejection at that average had ended up killing the nascent bull market four years ago, as discussed on Friday.

Further, with the pullback from five-month highs above $5,600 to $5,000 witnessed last week, the widely-followed 14-day relative strength index (RSI) is flashing bearish.

So, the path of least resistance appears to be on the downside in the short-term.

That said, investors looking to buy at lower levels may be left disappointed if the 30-day moving average (MA), which consistently applied brakes on price pullbacks in March, again fuels a strong bounce.

That possibility cannot be ruled out, as the longer duration charts are still looking bullish. For instance, BTC is currently sitting well above the widely tracked barometer of a long-term trend, the 200-day MA, currently at $4,438. Other long-term indicators like the 14-week RSI are also reporting bullish conditions.

As of writing, BTC is changing hands at $5,163 on Bitstamp, representing little change on a 24-hour basis, while the 30-day MA is located at $5,107.

Daily chart

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While the 30-day MA had served as strong resistance in January, on Feb. 8, BTC confirmed seller exhaustion by establishing a bullish higher low and closing well above the 30-day MA after a 7.8 percent rise.

The newfound support has reversed price pullbacks ever since. The chart reveals BTC has established bullish higher lows along the 30-day MA throughout the recent rally, from lows near $3,300 to highs above $5,600.

Further, the long-term bullish breakout witnessed on April 2 was preceded by a higher low formation on the 30-day MA on March 26.

Hence, a bounce from that average would abort the short-term bearish view and could yield re-test of $5,627 (April 23 high).

A UTC close lower would imply an end of the rally from the Feb. 8 lows near $3,300 and allow for a deeper drop, possibly to the 50-day MA, currently at $4,649. That's supported by the short-term bearish technical setup, as represented by the lower highs on the RSI, the bearish crossover of the 5- and 10-day MAs and the downside break of the channel.

Weekly chart

BTC has created a red candle with long wicks (the gap between weekly high and opening price and weekly low and closing price) and small body (spread between open and close) on the weekly chart. The candle is widely considered a sign of indecision in the market.

The candle, however, appeared following a rally from lows near $3,300 seen in February and at the crucial 50-week MA resistance. So, it could indicate, more specifically, indecision among the buyers.

Any break below the 30-day MA would validate the bullish exhaustion signaled by the weekly candle and open the doors to deeper price pullback.

The long-term outlook will remain bullish as long as the price is holding above the former resistance-turned-support of $4,236 (Dec. 24 high).

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View

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