Bitcoin’s broader bullish trend is intact despite Monday’s sharp retreat from a 3.5-month high over $10,000.
The cryptocurrency ran into offers near $10,200 and fell to levels near $9,730 during the Asian trading hours on Monday and spent the rest of the day trading in the narrow range of $9,750–$9,900.
Some observers are disappointed bitcoin’s break above $10,000 was short-lived. “Disheartening to see BTC reject us not even 24 hours after breaking 10K”, derivatives trader John Wick tweeted earlier on Tuesday.
Prices closed Monday (UTC) with a 3.18 percent loss, the second-largest daily decline of 2020 – the first being a 3.2 percent slide seen on Jan. 23, according to CoinDesk’s Bitcoin Price Index.
- Bitcoin’s broader uptrend is still valid despite Monday’s sudden move lower from $10,200. The weekly chart shows scope for a test of the October high of $10,350.
- A deeper pullback to support below $9,600 may be seen before the return of the rally, as the short duration charts are indicating buyer exhaustion.
- A UTC close under $9,075 (Feb. 4 high) would invalidate the bullish setup.
According to Wick, the speed of bitcoin’s ascent (or bullish momentum) has slowed. After all, Monday’s drop completely engulfed the price gains seen on Sunday – a sign of buyer exhaustion.
However, the broader uptrend from January lows below $7,000 is still intact because prices are hovering well above the base (higher low) of $9,075, established on Feb. 4.
As long as that support stays intact, the path of least resistance will remain to the higher side. At press time, bitcoin is trading near $9,796, representing a 0.58 percent drop on a 24-hour basis.
Bitcoin has carved out a bearish engulfing pattern, marking a negative follow-through to Sunday’s bullish “marubozu” candle.
A failed marubozu at multi-month highs often paves the way for deeper price pullbacks.
Bitcoin breached the head-and-shoulders neckline support during the Asian trading hours Tuesday. So far, the downside has been contained near $9,700.
The breakdown, however, could yet encourage selling and lead to a stronger move to the downside. The cryptocurrency looks set to revisit former hurdle-turned-support at $9,586 (Nov. 4 high) in the short term. Acceptance below that level would expose the Feb. 4 low of $9,075.
The immediate bullish case would be revived if prices rise above $10,010, invaliding the lower-highs setup on the hourly charts, as discussed yesterday.
Building a base?
It’s worth noting that corrections are a normal occurrence in bull markets and often end up recharging engines for the next leg higher. “If I was climbing a rock wall I would want to constantly re-anchor. Same idea with assets, build a base”, popular trader Cantering Clark tweeted Monday.
For instance, bitcoin fell from $9,188 on Jan. 19 and revisited the former hurdle-turned-support of $8,200 five days later, before rallying above $10,000.
While the ongoing correction may be extended, the crucial support at $9,075 will likely hold as the longer duration charts are reporting strong bullish conditions.
Bitcoin has risen strongly over the last few weeks, having witnessed a falling channel breakout in early January.
The MACD histogram is printing higher consecutive bars above the zero line, a sign of the strengthening of bullish momentum. The five- and 10-day averages are also trending north in favor of the bulls.
Overall, the weekly chart is aligned in favor of a rally to the October high of $10,350.