- Bitcoin violated crucial resistance near $8,460 on Tuesday, strengthening the case for a rise to the 200-day average at $9,100.
- The pullback seen in the last 12 hours or so lacks volume support and could be short-lived.
- Acceptance under Tuesday's low of $8,100 would abort the short-term bullish bias. Indicators, however, are reporting strong bullish momentum, so a drop below $8,100 looks unlikely.
Bitcoin jumped sharply on Tuesday, violating key resistance and opening the doors for a test of a widely followed technical line above $9,000.
The number one cryptocurrency by market value added nearly $800 to its price and ended the day (UTC) with 8.74 percent gains – the biggest single-day gain since Dec. 15, according to CoinDesk’s Bitcoin Price Index.
Back then, bitcoin had reversed higher from an eight-month low of $6,425 to score its first double-digit gain since Oct. 25. The big move from multi-month lows warned of an impending reversal of the six-month bearish period – a trend change that was confirmed with last week’s 11 percent price gain.
That bullish breakout has been bolstered by Tuesday’s move above $8,463 – passing the resistance of a lower high created on Jan. 8.
As a result, the next major resistance – the 200-day moving average (MA) located at $9,100 – could soon come into play.
At press time, bitcoin is changing hands near $8,710, representing a 1.4 percent gain on a 24-hour basis.
While prices have pulled back from Tuesday’s high of $8,900, the technical charts suggest it's nothing more than a temporary correction.
Bitcoin rose more than 8 percent and closed well above $8,463 on Tuesday. The breakout above the lower high was accompanied by the strongest buying volumes (green bar) since Nov. 25, according to Bitstamp data.
Volumes also rose sharply on major exchanges including Bitfinex and Coinbase, which are included in the calculation of Bitwise’s “real 10” bitcoin trading volume listing along with Bitstamp.
As a result, further gains could be in the offing, more so as there are no signs of overbought conditions. The 14-day relative strength index is yet to cross into overbought territory above 70.00.
Further, bullish momentum is looking strong with the five- and 10-day averages sloping upwards.
In the six hours to 05:00 UTC, trading volumes dipped as the cryptocurrency pulled back from $8,900 to $8,555. A low-volume price drop is often short-lived.
The RSI has also realigned in favor of the bulls as opposed to above-70 readings seen 24 hours ago.
All in all, bitcoin looks set to pass the psychological resistance of $9,000 and test the 200-day MA at $9,100 in the short-term.
A UTC close above the 200-day MA would expose key resistances located at $9,400 and $10,350.
Popular analyst Josh Rager expects a potential break above $10,350 to set the tone for a major bull run for months to come.
The cryptocurrency reversed sharply lower from $10,350 in October, so a move past that resistance could attract keener buying.
The short-term bullish view would be invalidated if prices find acceptance under Tuesday's low of $8,105. That level could come into play if the cryptocurrency breaches the former hurdle-turned-support of $8,463 on the back of strong volumes.
Disclosure: The author does not currently hold any digital assets.
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