Bitcoin (BTC) is working its way through the key supply zone above $7,500 and could test resistance at $7,870 in the next 24 hours, the technical charts indicate.
The cryptocurrency looked primed for a corrective rally yesterday, having created a bullish outside-day candle on Tuesday. However, the bulls had a tough time absorbing supply around 50-candle moving average (MA) on the 4-hour chart, located yesterday at $7,550.
The repeated failure to beat the moving average hurdle ended in a downside break of the diamond pattern. The subsequent sell-off ran out of steam at $7,270, and led to a convincing move above the 50-candle MA, seen today at $7,441.
As of writing, BTC is changing hands at $7,535 on Bitfinex, up 0.6 percent over 24 hours, and looks set to test the falling trendline resistance located at $7,870.
The recovery from $7,270 to $7,570 has established a higher low (bullish pattern), which adds credence to Tuesday’s bullish outside-day candle and bullish price-relative strength index (RSI) divergence.
Hence, BTC could test supply around $7,870 – resistance of trendline sloping downwards from the May 6 high and May 21 high.
It also means the cryptocurrency will likely peep above the all-important 50-week MA, currently located at $7,711. However, only a weekly close (Sunday’s close as per UTC) above that level would signal bearish invalidation.
As seen in the chart above, the last weekly candle had closed below the 50-week MA for the first time since October 2015, in theory indicating the end of the long-term bull run.
Despite the bullish set up, there is merit in being cautious as the major moving averages – 50, 100 and 200 – on the 4-hour chart are also biased to the bears, as is the 10-day MA.
- Bitcoin will likely soon rise to $7,870 (descending trendline hurdle) in the next 24 hours. A high-volume break above that level would allow a re-test of the 50-day moving average, currently located at $8,522.
- Bearish scenario: The moving averages are maintaining a bearish bias, so a drop to $6,900 could be on the cards if the bulls fail to capitalize on the break above $7,500 and the price drops below $7,270 in the next 24 hours.
Archery target image via Shutterstock