Bitcoin Defends Price Support, But Bear Case Still Intact

View

• Bitcoin's repeated defense of the 100-day moving average signals seller exhaustion, but a break above $10,445 – the high of Thursday's hammer candle – is needed to confirm a bull revival.
• A high-volume move above $10,445 would open the doors to re-test of $11,120.
• BTC may have a tough time scaling $10,445, as the daily chart indicators are biased bearish.
• The risk of a drop to $9,049 (July 17 low) remains as long as prices are held below that level.

Bitcoin BTC$89,917.94 has bounced from key price support, but the outlook remains bearish as long as prices hold below Thursday's high of $10,445.

The leading cryptocurrency by the market value found takers near the widely followed 100-day moving average (MA) at $9,700 earlier today, but at time of writing had regained ground to around $10,060, according to Bitstamp data.

Sellers had managed to breach the 100-day MA in the early European trading hours on Thursday, but the breakdown was short-lived and BTC ended the day with 2.78 percent gains at $10,301.

In technical terms, the cryptocurrency created a long-tailed hammer candle on Thursday, implying seller exhaustion near the 100-day MA.

The recovery from the 100-day MA support seen today has further confirmed the weakening of bearish momentum.

A short-term bullish reversal, however, would be confirmed only if buyers make their presence felt today, pushing prices above Thursday's high of $10,445. That would validate the seller exhaustion signaled by Thursday's long-tailed hammer candle.

Long-tailed daily candles have consistently reversed pullbacks in the recent past, as seen in the chart below. So, there is a historical case to be made for a price rise above $10,445 today. That said, widely followed technical indicators continue to call a bearish move.

Daily chart

Bitcoin's pullback from the June 26 high of $13,880 ended with the cryptocurrency forming a long-tailed bullish hammer on July 2.

On similar lines, July 17's long-tailed candle marked an end of the pullback from the July 10 high of $13,200 and was followed by a rise to $11,120. Again, the cryptocurrency created a long-tailed doji on July 28, before rising to highs above $12,000 on Aug. 6.

So, if history is a guide, the cryptocurrency may post a strong follow-through to yesterday's bullish hammer candle.

However, technical indicators are biased bearish: the 5- and 10-day MAs are trending south, the 14-day relative strength index (RSI) is hovering below 50 and the MACD is producing lower lows below the zero line.

Going by the indicators, the cryptocurrency may have a tough time printing the necessary (for the bulls) UTC close above Thursday's high of $10,445.

Hourly chart

BTC witnessed a rising wedge breakdown earlier today. That bearish continuation pattern marked an end of the bounce from yesterday's low of $9,467 and a resumption of the sell-off from recent highs above $12,000.

That pattern is still valid, meaning the path of least resistance is to the downside.

Furthermore, the bounce seen in the last few hours is not backed by strong buying volumes (green bars) and could be short-lived.

All-in-all, the cryptocurrency looks likely to remain on track to test the $9,049 (July 17 low). Acceptance below that level would confirm a bearish reversal on the monthly chart, as discussed earlier this week.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View