- Bitcoin remains trapped in a four-month falling channel despite registering double-digit gains last week.
- Prices could pull back to former resistance-turned-support of $8,800 in the next 24 hours. The bearish case would be invalidated above $9,730.
- A weekly close or two consecutive daily closes (UTC) above the falling channel hurdle at $9,730 are needed to confirm a resumption of the bull rally from April lows around $4,000.
Bitcoin (BTC) eked out double-digit gains last week, but failed to invalidate a four-month bearish trend.
The top cryptocurrency by market capitalization closed (UTC) at $9,557 on Sunday, representing a 16 percent gain from the weekly opening price of $8,237. That's the biggest weekly gain since the third week of June, when prices had rallied by 20.70 percent, according to Bitstamp data.
The week's performance looks more impressive if we take into account the fact that prices had dropped to five-month lows below $7,300 on Wednesday. The breakdown, however, was reversed and prices surged by 42 percent to $10,350 on Friday, following Chinese President Xi Jinping's encouraging comments on blockchain adoption.
The 16-percent gain seen last week is bitcoin's ninth double-digit weekly rise of 2019. A 26.73 percent rally seen in the first week of April is the biggest weekly gain of 2019 so far.
Back then, prices had jumped from $4,000 to $5,200, confirming a bullish breakout. The latest double-digit weekly gain, however, has failed to achieve the same, as seen in the chart below.
Bitcoin invalidated a bearish lower-highs set up with a convincing move above the Dec. 25 high of $4,236 in the first week of April. The bullish reversal confirmation paved the way for a solid rally to $13,880 by the end of June.
Since then, the cryptocurrency has charted a series of lower highs and lower lows, as illustrated by the trendlines connecting the June and August highs and July and September lows.
Prices jumped 16 percent last week, but failed to close above the upper edge of the four-month falling channel.
With the bearish channel still valid, it's too early to call a resumption of the bull market. For that, the bulls need to close the week (Sunday, UTC) above the channel resistance, currently at $9,730.
Last week's price rise was backed by a surge in trading volumes to the highest level since July. Hence, a strong follow-through cannot be ruled out.
That said, the short-term charts are calling a pullback to $8,800. At press time, BTC is changing hands a around $9,400 on Bitstamp, representing a 9.17 percent drop on a 24-hour basis.
Daily and 4-hour charts
The long upper wick attached to Friday's and today's daily candle indicates buyer exhaustion above $10,000 and scope for a price pullback.
The bearish divergence of the relative strength index on the 4-hour line chart (above right) also indicates buyer exhaustion. A bearish divergence occurs when an indicator forms lower highs, contradicting higher highs on price.
As a result, a retest of $8,820 – the former resistance-turned-support of Oct. 11 high – could be in the offing in the next 24 hours.
The bearish divergence would be invalidated if prices rise above $9,730. Failed bearish patterns are powerful bullish signals. Hence, a break above $9,730 would likely yield a quick move above $10,000.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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