Bitcoin (BTC) Recovers After Bearish Signal: Can the Rally Hold?

Bearish divergence on the short-term time frame may have accounted for Bitcoin’s dip to $112,000. Now that this divergence has possibly played out, will Bitcoin start to return to the highs, or is this the beginning of a general roll over back down to the $108,000 horizontal support level?

Bearish divergence finished?

Source: TradingView

The 4-hour time frame chart reveals how bearish divergence was probably the culprit for Bitcoin’s latest dump. While the price was continuing to climb before meeting the $117,500 horizontal resistance, the Stochastic RSI indicators made a lower high, and at the same time the RSI indicator also made lower highs. This is classic bearish divergence, and while this is only a short time frame, it was strong enough to bring the $BTC price down across the board.

After hitting the $112,000 horizontal support level $BTC has been moving sideways, consolidating before a movement in one direction or the other. While it could be suggested that this consolidation might be forming a bear flag, the $BTC price did become very oversold, and all the shorter term Stochastic RSI momentum indicators were able to reset. Therefore, a move to the upside might be the more likely scenario.

Daily chart shows the bulls coming back into contention

Source: TradingView

While there is quite a lot of information in the daily chart above, first one could look at the thick yellow line in the middle which signifies firm horizontal support. It can be seen that the $BTC price has bounced solidly from here so far.

The price is back below the 50-day SMA and the 100-day SMA. Therefore, this next upward impulse will be used by the bulls to attempt to break back above these simple moving averages, with the main target being to also break through the major horizontal resistance levels at $115,700 and $117,500.

It can be observed that the Stochastic RSI indicators at the bottom of the chart are heading down. This momentum marker on the daily accounts for some big moves, so once the indicators have reached bottom they will be reset and ready to signal upside price momentum once again.

Beautiful market structure continues to form

Source: TradingView

Stripping the weekly time frame chart down to the bare bones, it can be seen that the $BTC price action is in a well-defined range. It should be noted that the bottom of the range coincides perfectly with the 0.618 Fibonacci, which only adds to the solidity of this horizontal support. As long as $BTC moves inside the bounds of this range, and the longer the price action stays within, the bigger the move to the upside that can result when the price does finally break out.

Why assume that this move could break to the upside? The trend is still up, so it’s a case of respecting the trend until the very end. As things stand, there is nothing really bearish about this chart. A big move to $124,000 needed to be digested by the market and this has been taking place ever since that top. What can be seen now is beautiful market structure being built on top of the $108,000 horizontal support level. Only if a candle were to pierce through the bottom of this support, and another candle open below, would the uptrend start to be broken. As it is, the trend looks set to continue.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.