Bitcoin (BTC) is stuck in a narrowing price range and the direction of the breakout will likely set the tone for the next move in the market, according to technical charts.
The leading cryptocurrency was expected to rise toward 7,000 over the weekend, having moved past a key technical hurdle on Friday. However, contrary to expectations, BTC failed to absorb supply around $6,600 in the last 48 hours.
Even so, the rejection at $6,600 has not proved costly. This is evident from the fact that for BTC bears have struggled to penetrate the psychological support of $6,300.
Clearly, the cryptocurrency is being squeezed in a $300 range and is currently changing hands at $6,400 on Bitfinex – up 0.80 percent on a 24-hour basis.
An upside break of the trading range would signal a continuation of the rally from the Aug. 14 low of $5,859. On the other hand, a downside break would indicate the corrective has ended.
As seen in the chart above, BTC has created a narrowing price range, popularly known as the pennant pattern, over the last five days.
As of writing, the pennant resistance (top end) is located at $6,595 and the support (lower end) is seen at $6,320.
A bullish breakout would be confirmed if the 4-hour candle closes above $6,595. That would add credence to the bullish relative strength index divergence (RSI) and a beach of a key falling trendline witnessed earlier this month and would open the doors to a stronger rally towards $7,000 (psychological hurdle).
However, the bears could feel emboldened if the 4-hour candle closes below $6,320. In this case, BTC could drop below $6,000 (February low). It is worth noting that a downside break of the pennant would push the RSI below the rising channel support and that would only validate the bearish price pattern.
The bullish crossover between the 5-day and 10-day moving averages (MAs) indicates the path of least resistance is to the upside.
That said, the overall bias as per the daily chart remains bearish as long as the cryptocurrency is trading below the ascending trendline drawn from the June 29 low and July 12 low. At press time, both the rising trendline and 100-day MA are located at $7,067.
- A bull pennant breakout will likely allow a rally to $7,000. The outlook as per the daily chart would turn bullish if prices find acceptance above $7,067 (rising trendline hurdle seen in the daily chart).
- A pennant breakdown would shift risk in favor of a drop to $6,000 (February low).
- The support at $5,859 (Aug. 14 low) and $5,755 (June 29 low) would come into play if the bulls fail to defend $6,000.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Author: Omkar Godbole