- With prices holding above Tuesday's low of $5,687, bitcoin remains on track for a break above $6,000.
- Acceptance below $5,687 would validate the bullish exhaustion signaled by a "shooting star" candle that formed Tuesday and could yield a deeper drop to the 30-day moving average (MA), currently at $5,333.
- The case for a deeper pullback would further strengthen if the current 3-day candle ends below $5,510.
Bitcoin's (BTC) bullish case is still intact after a pullback from 5.5-month highs, but prices must stay above key support at $5,700 to maintain that scenario.
The cryptocurrency market leader is currently trading at $5,820 on Bitstamp, down 2.5 percent from the 5.5-month high of $5,970 hit in the Asian trading hours on Monday.
Bitcoin, however, is still holding above the April 23 high of $5,623, meaning the most of basic of all bullish patterns – a higher high and higher low – is still valid.
The long-term bias also remains bullish, with the price holding well above the 21-month exponential moving average (EMA) at $5,296. So, the cryptocurrency remains on the hunt for a break above $6,000.
That said, BTC's retreat from the 5.5-month high of $5,970 to close Tuesday (UTC) at $5,751 is telling a tale of temporary bullish exhaustion. These early signs of a trend change would gain credence if BTC find acceptance below Tuesday's low of $5,687.
So far, however, sellers have not made their presence felt, allowing the price to hold above $5,687 despite a “large scale security breach" at Binance, the world's largest cryptocurrency exchange by trading volume. The startup announced on Tuesday that hackers had stolen over 7,000 bitcoins and that users won't be affected.
The series of higher highs and higher lows, ascending 5- and 10-day moving averages (MAs) and channel breakout on the relative strength index (RSI) seen above all indicate scope for a move above $6,000.
Even so, caution is warranted on the part of buyers as early signs of trend exhaustion have emerged on the daily chart.
To start with, BTC has failed four times in the last five days to close above the key resistance of $5,780 (June 2018 low).
Further, BTC created a shooting star candle on Tuesday, which occurs when a day begins on an optimistic note, but ends with sellers pushing the price back close to the day's open.
That candle is widely considered an early sign of a bullish-to-bearish trend change when it occurs after a prolonged rally and its upper shadow is at least twice as long as its body. That seems to be the case here.
Traders, however, usually wait for strong confirmation, preferably in the form of a sustained move below the low of the shooting star candle.
As a result, the case for a rally to $6,000 would weaken significantly, and the prospects of a deeper pullback to the crucial 30-day MA at $5,333 would improve, if BTC finds acceptance below $5,687 in the next 24 hours.
4-hour and 3-day charts
On the 4-hour chart (above left), the Chaikin money flow index, which measures the money flow volume over a set period of time (usually 21 days) to gauge buying and selling pressure, is consistently producing lower highs, contradicting higher highs in price.
That bearish divergence indicates a loss of upward momentum, which is evident from BTC's inability to produce a quick move above $6,000 despite the observed diamond-pattern breakout – a bullish continuation pattern.
A similar bearish Chaikin money flow and volume divergence are also seen on the 3-day chart. Further, it is worth noting that the previous three-day candle is a doji – another sign of bullish exhaustion.
The 30-day MA support at $5,333 may be breached if the current 3-day candle closes (Thursday, UTC) below $5,510, validating the doji candle.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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