Bitcoin could be in for a recovery rally, having defended a key support level over the weekend.
Looking back, the leading cryptocurrency suffered an ascending channel breakdown on Nov. 7, signaling a temporary top has been made at $6,540. On the following day, the moving average studies rolled over in favor of the bears, bolstering the already negative technical setup.
As a result, BTC was expected to beat the support of the trendline connecting the Oct. 11 low and Oct. 31 low and drop to $6,200 over the weekend. Instead, it carved out a higher low (bullish pattern) at $6,270 yesterday. More importantly, the bears failed to secure a sustained break below that rising trendline.
At press time, BTC is changing hands at $6,360 on Coinbase and the ascending trendline support is located at $6,300.
While the rebound from the ascending trendline is encouraging, a bullish reversal would be confirmed once prices set a higher high with a move above $6,540.
As can be seen above, BTC charted a second higher low along the rising trendline yesterday, saving the day for the bulls.
Further, it is currently creating the right shoulder of the inverse head-and-shoulders bullish reversal pattern. A break above the neckline resistance of $6,390, if confirmed, would pave way for $6,510 (target as per the measured height method).
A bull breakout could happen in the next few hours as the prices have bounced nicely off the trendline support. The major exponential moving averages (EMAs) – 50, 100 and 200 – have shed bearish bias (are flatlined).
What’s more, a key indicator on the 4-hour chart is also favoring an upside move.
Over on the 4-hour chart, the bullish divergence of the moving average convergence divergence (MACD) histogram is indicating that the sell-off from the last week’s high of $6,540 has likely run its course and a stronger recovery could soon unfold.
A bullish divergence is confirmed when BTC records a lower low and the MACD records a higher low.
- The immediate bearish outlook stands neutralized.
- The recent highs above $6,500 could be put to test if prices take out the inverse head-and-shoulders neckline hurdle of $6,390.
- Acceptance under the bullish trendline support on the hourly chart would signal a resumption of the drop from $6,540 and could yield a test of the major psychological support of $6,000.