- Bitcoin’s drop from $10,949 to $9,855 (Wednesday low) may be a bear trap, as selling volumes have dropped throughout the price pullback.
- A widely-tracked 4-hour chart indicator is reporting a bullish divergence and the daily candlesticks are signaling seller exhaustion. BTC could rise above $10,270, confirming a falling wedge breakout on the 4-hour chart.
- A wedge breakout, if confirmed, would open the doors to $10,956 (Aug. 20 high). A UTC close above that level would confirm bull revival.
- On the lower side, a high-volume drop below $9,855 could pave way for a deeper drop toward $9,500. Currently, that looks unlikely.
Bitcoin (BTC) has recovered from nine-day lows hit earlier on Wednesday and may pick up a strong bid during the day ahead.
The leading cryptocurrency by market value fell to $9,855 on Bitstamp during the Asian trading hours, the lowest level since Sept. 2. At that level, prices were down 11 percent from Friday’s high of $10,950.
At time of writing, BTC is changing hands around $10,000, representing a 1.9 percent drop on a 24-hour basis.
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failed breakout on the hourly chart on Monday.” data-reactid=”21″>BTC’s drop into four figures seen earlier today validated the bearish view put forward by BTC’s failed breakout on the hourly chart on Monday.
key hourly chart support of $10,060.” data-reactid=”22″>Further, the daily chart is reporting bearish conditions with a lower-highs setup. The cryptocurrency has also found acceptance below key hourly chart support of $10,060.
Even so, the sellers need to observe caution, as the recent pullback lacks volume support and may prove a bear trap, as seen in the chart below.
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Selling volumes (red bars) have been consistently higher than buying volumes (green bars) through the price pullback from $10,950 to $9,855.
However, the red bars have produced lower highs, meaning the selling volume, or pressure, has eased along with the price.
A low-volume decline is often short-lived and ends up trapping the bears on the wrong side of the market.
Also, the pullback has taken the shape of a falling wedge on the 4-hour chart. A falling wedge comprises of converging trendlines connecting lower highs and lower lows and is widely considered a bullish reversal pattern.
A break above the upper edge of the falling wedge, currently at $10,270, would confirm a breakout and open the doors for re-test of the recent high of $10,949.
The breakout looks likely as the moving average convergence divergence (MACD) histogram, a widely-tracked trend following indicator, is reporting a bullish divergence – higher lows contradicting lower lows on price.
The bullish case would weaken if prices drop below the previous long-tailed candle’s low of $9,855 with a solid rise in selling volumes (red bar breaches falling trendline).
The long tails attached to the previous three candles indicate dip demand near the daily lows or bearish exhaustion – in effect, the sellers fought to keep prices lower, but lost as the buyers pushed the price up.
The daily chart also shows a steady drop in selling volumes in the last five days.
So, BTC may move higher, possibly to levels above $10,270 during the next 24 hours, confirming a breakout on the 4-hour chart.
The outlook as per the daily chart would turn bullish if prices invalidate the bearish lower highs setup with a UTC close above $10,956 (Aug. 20 high).