Bitcoin (BTC) has recovered slightly from six-week lows seen yesterday and could see a short-term corrective bounce to $3,500.
The leading cryptocurrency is currently trading at $3,416 on Bitstamp, having hit a low of $3,322 on Tuesday – a level last seen on Dec. 17.
The 2.8 percent recovery could be associated with the oversold readings on the short duration technical indicators seen 24-hours ago. Moreover, Monday’s high-volume range breakdown and the drop to multi-week lows had pushed the relative strength indices on the hourly and 4-hour charts below 30.00
With the minor rally, however, those RSIs have moved back to undersold territory and are now in line with the bearish view put forward by a convincing break below $3,500 seen on Monday.
Even so, the drop to December lows near $3,100 may not happen immediately as stronger signs of temporary bearish exhaustion have emerged on the longer duration charts.
Daily and 4-hour chart
As seen above, BTC has reported losses in the last five trading sessions – the longest losing streak since mid-November.
Notably, the ascending triangle breakdown on the 4-hour chart confirmed on Monday signaled a resumption of the sell-off from the Jan. 10 high of $4,036. The 5- and 10-day MAs are trending south and the 14-day RSI is reporting bearish conditions with a sub-50 reading.
So, the doors look to have been opened for a drop to December lows near $3,100.
The cryptocurrency, however, may test bears’ resolve by rising to the bearish 10-day MA of $3,511, as the long-tails attached to the previous three daily candles signal a lack of conviction on the part of the bears.
A long-tailed candle occurs when there is a big gap between the daily low and UTC close, that is, when sellers fail to secure a close near the lowest point of the day.
The bullish divergence of the RSI and the falling channel breakout indicate the sell-off from the high of $3,658 has likely paused. BTC, therefore, could rise to $3,500 and above.
The outlook, however, will remain bearish as long as BTC is held below $3,658 (the high of Saturday’s bearish reversal candle).