Bitcoin has dropped below $7000 a few minutes before press time, triggering fears of a bull trap.
The leading cryptocurrency closed yesterday (as per UTC) above the trendline sloping downwards from the March 5 high and May 5 high, confirming a long-term bearish-to-bullish trend change.
However, the follow-through has been disappointing. As of writing, BTC is changing hands at $6,965 on Bitfinex – down 3.5 percent on a 24-hour basis.
The negative price action reminds us of a failed long-term bullish breakout of July, although the latest bull reversal looks sustainable, according to technical studies.
As seen in the above chart, Bitcoin‘s move above the falling channel hurdle (or falling trendline) on July 24 trapped the bulls on the wrong side of the market.
On that fateful day, BTC had crossed the long-term falling trendline hurdle to print a high of $8,507 only to fall back below the psychological support of $6,000 by mid-August.
The bull breakout was short-lived, possibly due to overbought conditions: back then the relative strength index (RSI) was located at 77.00. A technical correction is always a possibility with RSI holding above 70.00. (overbought zone).
More importantly, the BTC market was rocked by the US Securities and Exchange Commission’s (SEC) rejection of the Bitcoin exchange-traded funds (ETFs) at the end of July and that played a big role in pushing prices below $6,000.
As for today, the RSI is located at 64.50, meaning there is plenty room for an extension of the rally towards the immediate resistance lined up at $7,806 (200-day moving average). Further, markets seem to have priced-in the ETF-related bad news in the first half of August.
And last but not the least, BTC’s recovery from $5,859 (August low) has produced the first higher price low of the year, which indicates the tide is turning in favor of the bulls.
As a result, it seems safe to say that history is unlikely to repeat itself, that is, BTC’s bullish move above the falling channel hurdle looks legitimate.
Indeed, the cryptocurrency is losing altitude at the time of writing, however, the pullback will likely be short-lived as the short-term and long-term technical studies are biased toward the bulls.
Despite BTC’s pullback from the highs above $7,400, the outlook remains bullish as the rising channel is still intact, as seen in the above chart.
Further, the stacking order of the 50-candle, above the 100-candle, above the 200-candle moving averages (MAs) is a typical bullish signal.
However, the bull case would weaken if the cryptocurrency finds acceptance below the rising channel.
BTC’s long-term bullish breakout looks more legitimate than the one seen in July.
The pullback witnessed today could end up recharging the engine for a stronger rally toward the 200-day MA of $7,806.
A UTC close below the 10-day MA would abort the short-term bullish view.
Acceptance below the 100-day MA located at $6,895 would invalidate the long-run bull breakout.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcointrap image via Shutterstock; Charts by Trading View