Bitcoin (BTC) bulls need to defend key support at $6,905, else the short-term bullish outlook would be invalidated.
At press time, the leading cryptocurrency is trading at $6,920 on Bitfinex – down 2 percent on a 24-hour basis.
The pullback from the previous day’s high of $7,139 does not come as a surprise, as the 21 percent rally witnessed in the last two weeks was looking overstretched yesterday.
However, the short-term bullish case would weaken if the cryptocurrency finds acceptance below the 100-day moving average (MA) of $6,905.
BTC created a spinning top candle yesterday, signaling indecision in the marketplace. However, when viewed against the backdrop of the 21 percent rally from the low of $8,507, the spinning top candle represents bullish exhaustion.
A UTC close below the 100-day MA lined up at $6,905 would validate the spinning top candle and shift risk in favor of a downside break of the rising wedge.
Acceptance below the wedge support would confirm a bullish-to-bearish trend change, that is, the rally from the low of $5,859 has ended and the bigger downtrend from the July high of $8,507 has resumed. In this case, BTC could revisit recent lows below $6,000.
Hence, the bulls need to defend the 100-day MA of $6,905 to keep the short-term bullish outlook intact. That said, the short duration charts are pointing to an increased risk of a drop below $6,905.
As seen in the above chart, BTC has breached the rising trendline in favor of the bears. Further, the relative strength index (RSI) has also taken out the ascending trendline support. As a result, the emboldened bears may push the cryptocurrency down to the ascending (bullish) 50-candle MA, currently located at $6,735.
A UTC close below $6,905 would confirm a spinning top bearish reversal and strengthen the odds of a downside break of the rising wedge pattern.
A rising wedge breakdown would signal a resumption of the sell-off from the July high of $8,507 and could yield a drop to $6,000 (February low).
A close today above the 100-day MA would keep the bulls in the game and allow a sustained move above $7,200 in the next couple of days.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; Charts by Trading View