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- Bitcoin printed a 10-month high of $8,390 earlier today only to fall back quickly below $8,000, strengthening the bearish divergence of the 4-hour chart relative strength index (RSI). The daily RSI is also teasing bearish divergence.
- BTC risks falling to a potential double-top neckline at $7,619. A break lower would open the doors to sub-$7,000 levels (target as per the measured height method).
- The case for correction in the next day or two would weaken if the price rises back above $8,300.
Bitcoin (BTC) could be in for a price correction, as exhaustion leaves the bulls unable to hold onto fresh 10-month highs hit earlier today.
The cryptocurrency market leader jumped to $8,390 on Bitstamp at 1:00 UTC, the highest level since July 25, 2018. However, the rise was short-lived as expected, with prices falling back to $7,740 within the last hour. As of writing, BTC is changing hands at $7,840, representing a 2 percent drop on a 24-hour basis.
Essentially, the cryptocurrency has failed twice in the last 48 hours to keep gains above $8,300, which validates the extreme overbought conditions reported by the widely followed relative strength index (RSI).
While the pullback from highs above $8,300 on May 14 was reversed by the 50-hour moving average (MA) support, the latest fall has taken prices below that line. As a result, a deeper correction is looking increasingly likely.
4-hour chart
BTC has dived out the bullish channel and could end up forming a double-top bearish reversal pattern with the neckline support at $7,619.
A slide to that key support looks likely, as the RSI printed another lower high earlier today, contradicting BTC’s rise to fresh 10-month highs, and is now reporting a descending triangle breakdown.
A 4-hour close below $7,619 would confirm a double-top breakdown and create room for a drop to levels below $6,900 (target as per the measured move method).
Daily chart
The RSI on the daily chart is also beginning to diverge from the uptrend in price, signaling weakening bullish momentum.
The 10-day MA, currently at $7,036, is still trending north, indicating a bullish setup. As a result, pullbacks to $7,000, if any, could be short-lived.
The short-term outlook would turn bearish if and when prices find acceptance below the historically strong support of the 30-day MA, currently at $5,923.
The case for a pullback would weaken if the price rises back above $8,300. Although, with the RSI well above 70.00, the bulls may have a tough time forcing sustainable rally to next key resistance at $8,500 (July 2018 high).
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; technical charts by Trading View
