Bitcoin's (BTC) escape from a prolonged consolidation has traders tracking chart patterns calling an extended move to the higher side.
The top cryptocurrency by market value topped $47,000 early Monday, confirming a breakout from a two-month triangular pattern defined by trendlines connecting Feb. 10 and March 2 highs and Jan. 25 and Feb. 24 lows.
"The triangle breakout has opened up upside toward resistance at $53,000," Daniel Kukan, senior cryptocurrency trader at Swiss-based Crypto Finance AG, said in a Telegram chat.
Triangles, which represent a steady narrowing of the trading range, form when bulls and bears are unwilling to lead the price action. So, traders and chart analysts consider an eventual escape from the triangle in either direction a hint of a beginning of a new bull or bear run.
"Decisive breakout on bitcoin this morning. A big base pattern completed above $45,855 (although needs a [UTC] close above to confirm)," market analyst Richard Perry tweeted. "This implies a test of $52,00 resistance and a projected target towards $57,400 in the next few months."
Fundamental and macro strategists often criticize technical analysis as unreliable as chart patterns and indicators often fail. Even so, it is hard to ignore. With so many people believing in the charts, the breakouts or breakdowns often become a self-fulfilling prophecy.
The chart above shows that a bull cross between the 50- and 100-day simple moving averages (SMA) could soon happen, strengthening the positive case presented by the triangle breakout.
A bull cross happens when a short-term moving average crosses above the long-term moving average, indicating a bullish shift in the momentum. Bitcoin jumped from $44,00 to $52,000 in the weeks after the 50- and 100-day SMAs crossed bullish on Aug. 19 last year.
While crypto Twitter has livened up on prospects of a big move higher, some observers take a measured approach to making bullish forecasts.
"The breakout above $45,000 provides more confidence that a reversal is in play, but our preference is to be cautious since the move was partly driven by advancement in stock markets," Lennard Neo, head of research at Stack Funds, told CoinDesk in a WhatsApp chat.
In other words, the cryptocurrency hasn't decoupled from stocks yet, and renewed risk aversion in traditional finance, if any, could play spoil sport.
While bitcoin has risen nearly 20% since the Federal Reserve raised borrowing costs by 25 basis points on March 16, the S&P 500, Wall Street's benchmark index, has jumped 5.9%, data provided by charting platform TradingView show.
Neo foresees profit-taking at around the psychological level of $50,000, which coincides with the widely tracked 200-day SMA. "It wouldn’t surprise us to see profit-taking on those levels by short-term traders who went long the past few weeks," he said.
The bullish technical outlook would be invalidated if the cryptocurrency drops under support at $43,000, Crypto Finance AG's Kukan noted.
Bitcoin was recently trading near $47,000, representing a 0.4% gain on the day and 1.4% gain for the year. According to Singapore-based QCP Capital, the move higher in the Asian session likely resulted from continued purchases by the Luna Foundation Guard.
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