Three Reasons Why Bitcoin Price Rally Has Stalled
(Source: coindesk.com)

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(Original link: coindesk.com)

Apr 15, 2019 at 11:30 UTC Updated Apr 15, 2019 at 11:41 UTC markets View Extremely overbought conditions and other factors seem to have stalled bitcoin’s promising price rally . Acceptance below $4,912 would validate signs of indecision on the weekly chart (doji candle) and open the doors for a deeper drop to $4,527 (200-day moving average). A break above last week’s high of $5,347 would invalidate the weekly chart doji candle, although an immediate rally to $6,000 looks unlikely with the daily RSI still flashing overbought conditions.
Bitcoin’s recent price rally has stalled and signs of indecision are evident in the market just a week after a big bullish breakout.
The leading cryptocurrency closed at $5,190 on April 7, confirming an upside break of a bearish channel – the same pattern that paved the way for a bull market in 2015.
So far, however, the follow through to that bearish-to-bullish trend change has been anything but bullish.
The cryptocurrency witnessed two-way business last week, clocking a high and low of $5,347 and $4,912 before closing almost flat at $5,162.
So, the rally looks to have stalled due to the following three factors: Overbought conditions
Bitcoin’s 14-day relative strength index (RSI), a widely followed technical indicator, jumped above 70.00 on April 2, signaling overbought conditions as the price jumped over 18 percent to highs above $5,000.
With the price climbing further to a 4.5-month high of $5,345, the RSI rose to near 90 levels, the highest since December 2017.
An extreme overbought reading is considered a sign the rally is overdone and is usually followed by a reaction – a price pullback or a consolidation, as is the case currently with bitcoin.
Prices then made numerous failed attempts to convincingly scale $5,300 in the eight days before a drop to $4,912 on April 12. Bearish volume divergence
Bitcoin’s 24-hour trading volume across all cryptocurrency exchanges, as calculated by CoinMarketCap , doubled to $21 billion on April 2, validating the bearish-to-bullish trend change signaled by the break above the key resistance of $4,236 and the rally to $5,000.
As the cryptocurrency extended gains further to a fresh 4.5-month high of $5,347 on April 8, though, trading volumes tapered off to $17 billion, reinforcing the overstretched conditions reported by the 14-day RSI.
Hence, the pullback to $4,912 (Friday’s low) was not surprising. Prices have recovered by more than $200 over the weekend, but volumes are down further, to $10 billion. So, the recovery could be short-lived. Forcing out weak hands before building breakout
The financial markets often test buyers’ resolve by revisiting former resistance-turned-support before building on a major bullish breakout. And that seems to be the case here.
For instance, BTC cleared the 100-day moving average (MA) hurdle on Feb. 19. The newfound support, however, was put to test multiple times in the 10 days to March 4 before a sustained move higher.
On similar lines, prices fell back below the psychological support of $5,000 last Friday and may drop even further to the 200-day MA, currently at $4,527, as the average is widely considered a barometer of a bullish/bearish trend.
The case for BTC shaking out weak holders with a drop to the 200-day MA looks stronger if support a $4,912 is breached. View Weekly chart
On the weekly chart, BTC created a doji candle on Sunday, which is widely considered a sign of indecisive market. Interestingly, the doji appeared following a high-volume falling channel breakout. So, it could be considered a sign of bullish exhaustion.
Acceptance below $4,912 – the low of the doji – would confirm buyer exhaustion, opening the doors for a deeper pullback to $4,527 (200-day MA). 4-hour chart
On the 4-hour chart, BTC could be creating the right shoulder of a head-and-shoulders bearish reversal pattern.
A break below the neckline support at $4,988 would create room for a drop to $4,629 (target as per the measured move method).
As of writing, BTC is changing hands at $5,142 on Bitstamp, representing a 2 percent gain on a 24-hour basis.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; charts by Trading View
This article is intended as a news item to inform our readers of various events and developments that affect, or that might in the future affect, the value of the cryptocurrency described above. The information contained herein is not intended to provide, and it does not provide, sufficient information to form the basis for an investment decision, and you should not rely on this information for that purpose. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments....