Bitcoin Falls Back Into Bear Flag: Bulls Done or Setup for Reversal?

As the Middle East conflict threatens to heat up again, with President Trump warning of “the calm before the storm”, the U.S. stock market could face further downside on Monday. Bitcoin has fallen back into its bear flag but there are signs that the bulls could soon stage a reversal as the $BTC price becomes heavily oversold.

$BTC price falls out of descending channel

Source: TradingView

The short-term 4-hour chart for the $BTC price illustrates that the original triangle pattern morphed into a descending channel, from which the price fell early on Saturday. It can be seen that the bulls tried to force the price back into the channel over the weekend, but the 200 simple moving average (SMA) intervened as another barrier, and the price was rejected from there.

Now looking as though it is going to hold support at $77,000, the $BTC price is quite oversold, therefore it would be expected that the price will come back up to the bottom trendline of the channel, either to confirm the breakdown or to push back inside and rally back to the major $80,600 resistance level. Stochastic RSI indicators in all the short-term time frames, and even up to the high time frame of the daily, have reached their bottom limits. A bounce is a decent probability.

Overhead resistance is strengthening

Source: TradingView

The daily time frame chart shows the bear flag in its entirety and the small bull flag that the price has recently fallen out of. While the current support level at $77,000 does look quite strong, and the Stochastic RSI indicators in this time frame have bottomed, the overhead resistance is looking very solid indeed.

If the $BTC price does rise from here and force its way back into the flag, the above resistance, including the 200-day SMA and the tops of the bear flag and the small bull flag, are going to form one hell of a barrier to prevent an upside breakout.

At the bottom of the chart, the Relative Strength Index (RSI) reveals that the indicator line has fallen out of the channel that has run the full length of the bear flag in the price action above. One can see the massive crash that occurred when the indicator line fell out of the previous channel, which matched the last bear flag.

Last rally then down to the bear market bottom?

Source: TradingView

Looking at the weekly view, there aren’t many ways to sugarcoat what this chart is telling us. Plain and simple, last week’s candle body closed at the $80,600 horizontal resistance level, and this week’s candle has opened well below. A fakeout looks to have occurred.

As already mentioned, there is the possibility that the $BTC price gets back up to that major resistance level again, but with the weekly Stochastic RSI indicators rolling over from the top, upside price momentum could be soon to disappear.

After this next potential rally could it be that there is a heavy rejection from the resistance and a calamitous crash takes the price all the way down to retest the bear market trendline, as was the case in the 2022 bear market?

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.