Three Reasons Why Bitcoin Price Rally Has Stalled

Bitcoin Struggles to Pass Price Hurdle But Bull Outlook Intact

Bitcoin’s recent price rally has stalled and signs of indecision are evident in the market just a week after a big bullish breakout.

The leading cryptocurrency closed at $5,190 on April 7, confirming an upside break of a bearish channel – the same pattern that paved the way for a bull market in 2015.

So far, however, the follow through to that bearish-to-bullish trend change has been anything but bullish.

The cryptocurrency witnessed two-way business last week, clocking a high and low of $5,347 and $4,912 before closing almost flat at $5,162.

So, the rally looks to have stalled due to the following three factors:

Overbought conditions

Bitcoin’s 14-day relative strength index (RSI), a widely followed technical indicator, jumped above 70.00 on April 2, signaling overbought conditions as the price jumped over 18 percent to highs above $5,000.

With the price climbing further to a 4.5-month high of $5,345, the RSI rose to near 90 levels, the highest since December 2017.

An extreme overbought reading is considered a sign the rally is overdone and is usually followed by a reaction – a price pullback or a consolidation, as is the case currently with bitcoin.

Prices then made numerous failed attempts to convincingly scale $5,300 in the eight days before a drop to $4,912 on April 12.

Bearish volume divergence

Bitcoin’s 24-hour trading volume across all cryptocurrency exchanges, as calculated by CoinMarketCap, doubled to $21 billion on April 2, validating the bearish-to-bullish trend change signaled by the break above the key resistance of $4,236 and the rally to $5,000.

As the cryptocurrency extended gains further to a fresh 4.5-month high of $5,347 on April 8, though, trading volumes tapered off to $17 billion, reinforcing the overstretched conditions reported by the 14-day RSI.

Hence, the pullback to $4,912 (Friday’s low) was not surprising. Prices have recovered by more than $200 over the weekend, but volumes are down further, to $10 billion. So, the recovery could be short-lived.

Forcing out weak hands before building breakout

The financial markets often test buyers’ resolve by revisiting former resistance-turned-support before building on a major bullish breakout. And that seems to be the case here.

For instance, BTC cleared the 100-day moving average (MA) hurdle on Feb. 19. The newfound support, however, was put to test multiple times in the 10 days to March 4 before a sustained move higher.

On similar lines, prices fell back below the psychological support of $5,000 last Friday and may drop even further to the 200-day MA, currently at $4,527, as the average is widely considered a barometer of a bullish/bearish trend.

The case for BTC shaking out weak holders with a drop to the 200-day MA looks stronger if support a $4,912 is breached.

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Weekly chart

On the weekly chart, BTC created a doji candle on Sunday, which is widely considered a sign of indecisive market.  Interestingly, the doji appeared following a high-volume falling channel breakout. So, it could be considered a sign of bullish exhaustion.

Acceptance below $4,912 – the low of the doji – would confirm buyer exhaustion, opening the doors for a deeper pullback to $4,527 (200-day MA).

4-hour chart

On the 4-hour chart, BTC could be creating the right shoulder of a head-and-shoulders bearish reversal pattern.

A break below the neckline support at $4,988 would create room for a drop to $4,629 (target as per the measured move method).  

As of writing, BTC is changing hands at $5,142 on Bitstamp, representing a 2 percent gain on a 24-hour basis. 

Source: Three Reasons Why Bitcoin Price Rally Has Stalled