Bitcoin could be in for a recovery rally, having defended a key support level over the weekend.
The leading cryptocurrency has been looking bearish over the last week. It suffered an ascending channel breakdown on Nov. 7, suggesting a temporary top had been created at $6,540, while the moving averages rolled over in favor of the bears a day later.
As a result, BTC looked likely to drop below the support of the trendline connecting the Oct. 11 and Oct. 31 lows, and move toward $6,200 over the weekend.
Instead, though, it carved out a higher low (bullish pattern) at $6,270 yesterday. More importantly, the bears failed to secure a sustained break below that rising trendline.
At press time, BTC is changing hands at $6,360 on Coinbase, while the ascending trendline support is located at $6,300.
While the rebound from the ascending trendline is encouraging, a bullish reversal would only be confirmed if prices move above $6,540 to set a higher high.
As can be seen above, BTC charted a second higher low along the rising trendline yesterday, saving the day for the bulls.
BTC is also currently creating the right shoulder of an inverse head-and-shoulders bullish reversal pattern. A break above the neckline resistance of $6,390, if confirmed, would pave way for a move to $6,510 (target as per the measured height method).
The major exponential moving averages (EMAs) – 50, 100 and 200 – have shed bearish bias (are flatlined) too. So, a bull breakout could happen in the next few hours as the prices have bounced nicely off the trendline support.
Over on the 4-hour chart, the bullish divergence of the MACD (moving average convergence divergence) histogram is indicating that the sell-off from the last week’s high of $6,540 has likely run its course and a recovery could soon unfold.
A bullish divergence is confirmed when an asset records a lower price low and the MACD records a higher low.
- The immediate bearish outlook has been neutralized.
- Recent highs above $6,500 could be put to the test if prices pass the inverse head-and-shoulders neckline hurdle of $6,390
- Acceptance below the trendline support on the hourly chart would signal a resumption of the sell-off from $6,540 and could yield a test of major psychological support at $6,000.
Disclosure: The author holds no cryptocurrency assets at the time of writing.