After breaching key support on Sunday, emboldened bears could soon push bitcoin (BTC) prices back towards $3,100.
The cryptocurrency closed yesterday (as per UTC) at $3,516, invalidating the bullish view put forward by the higher low of $3,566 carved out on Dec. 27.
That move also added credence to the bearish reversal signaled by the 9 percent price drop witnessed last Thursday.
Put simply, the bears seem to have regained control of the market after a gap of one month. Moreover, extreme oversold conditions had put a bid under the cryptocurrency at the 15-month low of $3,122 on Dec. 15. The ensuing recovery rally, however, failed to penetrate the head-and-shoulders neckline resistance of $4,130 last week.
As of writing, BTC is changing hands at $3,530 on Bitstamp, representing a 2 percent drop on a 24-hour basis.
As seen above, BTC found acceptance below $3,566 (Dec. 27 low) yesterday, validating the bearish doji reversal confirmed on Jan. 10.
The 14-day relative strength index (RSI) is reporting bearish conditions at 42.00, having breached the ascending trendline last week. Further, the 5- and 10-day moving averages (MAs) are trending south, indicating bearish setup.
So, it could be said that the recovery rally from the December low of $3,122 has only ended up recharging engines for a fresh sell-off.
BTC’s fall back to $3,500 has invalidated the positive view put forward by the three-day bullish outside-reversal candle of Dec. 20.
Moreover, the cryptocurrency’s failure to produce a significant price rally despite the positive divergence of the RSI, confirmed on Dec. 14, indicates that the bearish sentiment is still quite strong.
On the weekly chart, BTC created a bearish outside-reversal candle – last week’s price action engulfed the previous week’s high and low – signaling a resumption of the primary bearish trend, as represented by the downward sloping 10-week exponential moving average (EMA).
- BTC could re-test the 200-week MA of $3,266 in the next few days and could extend the decline to the December low of $3,122.
- A weekly close (Sunday’s UTC close) below the 200-week MA of $3,266 would open the doors for a deeper drop below $3,000.
- Acceptance above the downward sloping 10-week MA, currently at $3,919, would abort the bearish view.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; Charts by Trading View