- 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.
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).
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.