Bullish Signs Above $8K: Has Bitcoin Turned the Corner?
Bitcoin clocked six-day highs above $9,000 over the weekend, but a long-term bull market revival may not be on the cards, yet.
Having clocked a high of $9,070.64 on Saturday, prices again fell back below $8,000 briefly on Sunday before climbing again. CoinDesks’s Bitcoin Price Index (BPI) was last seen at $8,772.
The cryptocurrency has appreciated by 9.70 percent in the last 24 hours, as per data source CoinMarketCap. Bitcoin (BTC) is also close to 40 percent above last week’s low of $5,947.40.
So has the cryptocurrency bottomed out?
To start with, the sharp recovery from lows below $6,000 does indicate a short-term bottom is in place. However, BTC is still down 39 percent on a year-to-date basis. Further, the series of lower highs as represented by the falling trendline is still intact.
While, BTC has a history of rallying to fresh record highs after the relative strength index (RSI) has bottomed out at, or below, 30.00 (oversold region), the daily chart throws some doubt on that pattern today.
The above chart (prices as per Bitfinex) shows:
Throughout the uptrend from Aug 2015 to Dec 2017, the RSI fell to (or below) 30.00 on four occasions (marked by circles). And, in March 2017, the RSI bottomed out just above 30.00. Each time, BTC went on to clock fresh record highs.
The RSI has never formed a double bottom or turned sideways around 30.00. It has always been a “v” shaped recovery for the RSI.
The situation today looks similar. The RSI has recovered sharply from below 30.00 and BTC is up close to 40 percent from lows below $6,000. So, going by the historical pattern, BTC should rise to fresh record highs above $20,000.
However, the weekly chart indicates it will be easier said than done.
The above chart shows:
At no time were the bears strong enough to push the RSI below 53.00 (strong support marked by a horizontal line). Moreover, the 80.00–90.00 range has marked the tops, while the 53.00–55.00 support zone has marked all the pullbacks in the bull market (August 2015 to December 2017).
However, the support zone of 53.00–55.00 has been breached this time and, as of writing, the RSI is seen below 50.00 (bearish territory).
Further, the 5-week moving average (MA) and 10-week MA witnessed a bearish crossover in late January and are now sloping downwards in favor of the bears.
Hence, the historical pattern may not occur this time round. That said, BTC seems to have found a short-term bottom, as indicated by the sharp recovery from the lows around $6,000.
BTC could test the $10,000 mark in the short-run as the RSI on the 1-hour and 4-hour chart is rising and well short of the overbought region (above 70.00), but a rally to record highs (in line with the historical pattern) looks unlikely.
The cryptocurrency may find it hard to hold on to gains above $10,000, courtesy of the bearish setup on the weekly chart. Rejection at the downward sloping weekly 5-MA and 10-MA could trigger a fresh wave of selling.
On the downside, a daily close below $7,724.9 (Feb. 9 low) would add credence to bearish weekly chart and could yield a drop to $5,000.