Bitcoin’s (BTC) bulls and bears seem to be stuck in a stalemate, but a decisive session in either direction would likely define the trend going forward.
The cryptocurrency was solidly bid above $7,100 about 24 hours ago, reportedly due to speculation the Wall Street bigwigs (Soros and Rockefeller, for example) are set to enter the crypto markets. However, the long liquidation (unwinding of long bitcoin trades), as reported by WhaleCalls, looks to have pushed BTC to a low of $6,611 overnight.
At the time of writing, the cryptocurrency is sitting at $6,730 on Bitfinex, representing a 6.38 percent drop from the high of $7,189 seen Monday. Despite the retreat, the immediate outlook remains neutral, with bitcoin stuck within a narrowing price range (seen in the chart below).
4-hour chart: Narrowing price range
When viewed against the backdrop of the recent slide from $9,050 (March 24 high), the triangle pattern, representing the narrowing price range, looks like a bearish continuation setup. Hence, a downside break would revive the sell-off from $9,050 and allow a drop towards $5,950 (falling wedge support).
Daily chart: Bearish outside-day candle
Amid the unwinding of the long positions mentioned above, bitcoin created a bearish outside-day candle on Monday (i.e. the price action engulfed the previous day’s high and low), indicating that the corrective rally from the Friday’s low of $6,500 has ended.
The candlestick pattern suggests that the cryptocurrency will likely breach the narrowing price range to the downside and extend losses towards $6,000-$5,950.
On the other hand, if bitcoin breaks out of the narrowing price range with an upside move, the odds of a falling wedge reversal (bullish pattern) would improve.
Daily chart: Potential bullish reversal
A high volume close (as per UTC) above $7,200 would confirm a bullish falling wedge reversal, however, stiff resistance is lined up at $7,510 (double bottom neckline).
As a result, traders would want to see a break above $7,510 before calling a bullish reversal. In such a scenario, prices could rise to $8,500 (target as per the measured height method).
Monday’s bearish outside-week candle does suggest scope for a bearish breakdown. A downside break of the narrowing price range (triangle pattern) would open the doors to $6,000-$5,950 (falling wedge support). That said, traders need to watch out for signs of a rebound from the April 1 low of $6,425.
An upside breakout of the triangle pattern could see bitcoin chew through supply around $7,200, confirming a falling wedge reversal (bullish pattern) and allowing a rally to $7,500 (double bottom neckline).
Only a close above that level would confirm the short-term bullish trend reversal.
Scales image via Shutterstock