Bitcoin (BTC) is looking north, having scaled $7,000 on Tuesday, but its close proximity to a key resistance zone and the short-term overbought conditions are calling for caution on the part of the bulls.
The leading cryptocurrency jumped to a three-week high of $7,128 on Bitfinex yesterday and closed well above the 100-day moving average (MA) hurdle, signaling a continuation of the rally from the Aug. 14 low of $5,859.
However, the 21 percent price rise witnessed in the last two weeks is looking overstretched, as per the short-duration technical studies.
As a result, BTC may have a tough time scaling the immediate resistance zone of $7,160–$7,180 in the next 24 hours and could suffer a minor pullback before extending the ongoing rally.
At press time, BTC is changing hands at $7,100 – up 2.28 percent on the day.
As seen in the above chart, BTC’s convincing move above $7,000 has bolstered the already bullish setup as indicated by the higher highs, ascending 5-day and 10-day moving averages (MAs), and the bullish crossover between 50-day and 100-day MA.
The cryptocurrency has also found acceptance above $6,870 (38.2 percent Fibonacci retracement of the sell-off from $8,507 to $5,859) and the relative strength index (RSI) has moved well above 50.00 (in bullish territory).
So, it seems safe to say that for BTC, the path of least resistance is on the higher side, although a break above the resistance zone of $7,160 (top end or resistance of the rising wedge pattern)–$7,183 (50 percent Fibonacci retracement) could remain elusive for 24 hours or so.
The RSI is located above 70.00, signaling overbought conditions. Hence, the immediate upside could be capped around 7,180 and a minor corrective pullback could be in the offing.
Another cause for caution is the 4.7 percent drop in the BTC/USD Longs on Bitfinex yesterday, which indicates the break above $7,000 failed to entice the bulls. Moreover, it is the unwinding of shorts (drop in BTC/USD shorts), as seen in the chart above, that is likely driving BTC higher.
A rise in BTC/USD longs would add credence to the bullish view put forward by the daily chart.
The bull grip has strengthened, courtesy of BTC’s convincing move above $7,000, although the immediate resistance at $7,160-$7,180 will likely prove a tough nut to crack in the next 24 hours as the cryptocurrency is looking overbought on the short-term charts.
A corrective pullback, if any, will likely be short-lived. Traders should watch out for a rebound from the ascending 5-day and 10-day MA.
A move above $7,180 would open up upside toward the next major resistance at $7,330 (rising trendline seen in the daily chart).
The bears could feel emboldened if the rising wedge ends up with a downside break. That would mean the sell-off from the July high of $8,507 has resumed.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Hurdle image via Shutterstock; Charts by Trading View