- Bitcoin suffered a contracting triangle breakdown on Wednesday, as expected.
- The range breakdown is backed by bearish developments on the daily and 4-hour chart indicators. BTC, therefore, risks falling to $7,206 (May 18 low) in the next day or two.
- A UTC close below $7,206 would confirm a double-top breakdown and open doors for a drop to $6,070 (target as per the measured move method).
- The outlook would turn bullish if the price finds acceptance above $8,050 in the next 24 hours.
Bitcoin (BTC) dived out of a narrowing price range on Wednesday, opening the doors for a deeper drop to $7,200.
The leading cryptocurrency by market value fell below $7,850 in the U.S. trading hours yesterday, confirming a downside break of a contracting triangle pattern – a series of higher lows and lower highs – created in the first two trading days of the week.
The period of indecision ended with sellers gaining an upper hand, and the resultant range breakdown neutralized the immediate bullish view put forward by the near 13 percent price rise seen on Sunday.
As a result, BTC could continue to lose altitude in the short term. Currently, the cryptocurrency is trading at $7,530 on Bitstamp, representing a 4 percent drop on the day. Prices hit an intraday low of $7,468 earlier today.
Looking forward, the focus is on the key support at $7,200– a level the bulls must defend, as a break lower would confirm a short-term bullish-to-bearish trend change on the technical charts.
BTC dived out of the contracting triangle yesterday, validating bullish exhaustion signaled by multiple rejections at $8,300.
More importantly, the range breakdown is backed by a bearish below-50 reading on the relative strength index (RSI) and a drop into bearish territory below zero on the the moving average convergence divergence (MACD) histogram.
The path of least resistance, therefore, is to the downside.
On the daily chart, early signs of temporary bearish reversal have emerged in the form of a “hanging man” candle, as discussed earlier this week. Further, the daily MACD has turned bearish for the first time since May 2 and the RSI continues to create bearish lower highs.
BTC, therefore, could complete the forming double-top pattern seen above with a drop to $7,206 (May 18 low) in the next day or two.
A UTC close below $7,206 would confirm a double-top breakdown – a short-term bullish-to-bearish trend change – and would create room for a slide to $6,070 (target as per the measured move method).
That said, the historically strong support of the 30-day moving average (MA) is currently located at $6,475. That average is seen sloping upwards to $6,500 in the next couple of days. As a result, any following sell-off could be cut short near that level.
The outlook would turn bullish if prices rise above $8,050 in the next 24 hours, contradicting the bearish developments on the short-term charts. In that case, a rally to $8,500 (June 2018 high) could be seen.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Author: Omkar Godbole