Bitcoinâs (BTC) price saw its biggest drop for seven weeks on Thursday, weakening the prospects of a bullish breakout above $4,100.
The world’s largest cryptocurrency by market value hit a 3.5-week low of $3,503 yesterday, before closing (as per UTC) at $3,627 â down 9.4 percent on the day. That was the biggest single-day drop since Nov. 24 and the fourth biggest daily loss of the last two months, according to CoinDesk’s Bitcoin Price Index (BPI).
Essentially, the hard-fought gains of the last two weeks have been erased in the last 24 hours. The cryptocurrency had carved out a bullish-higher low near $3,550 on Dec. 27 before crossing $4,000 on Jan. 6.
The follow-through to break above $4,000, however, was anything but encouraging. Moreover, signs of bullish exhaustion emerged near the crucial resistance of $4,130 (inverse head-and-shoulders neckline) and demoralized bulls started to exit the market yesterday, leading to a sharp drop in prices.
As a result, the bears may be feeling emboldened and could attack the crucial support lined up near $3,550. As of writing, BTC is changing hands at $3,630.
Bitcoin fell to $3,500 yesterday, confirming a bearish doji reversal on the daily chart. The cryptocurrency also closed below the crucial 50-day moving average (MA) support,
Adding credence to the bearish move, trading volumes jumped to the highest level since Dec. 21 and 14-day relative strength index (RSI) breached the ascending trendline to the downside.
With the odds stacked in favor of the bears, the immediate support of $3,566 (Dec. 27 low) could be breached soon. That would only bolster the already bearish technical setup.
On the weekly chart, BTC has created a bearish outside reversal candle â this week’s price action has engulfed the previous week’s high and low – having failed to penetrate the 200-week exponential moving average (EMA) hurdle for four weeks straight.
The candlestick pattern indicates that the week began with optimism, but is approaching a more pessimistic close. As a result, it is widely considered a sign of bearish reversal.
Put simply, the doors have been opened for a re-test of the 200-week MA lined up at $3,250. Supporting that bearish case is the downward sloping 10-week MA.
- BTC risks breaching the bullish-higher low of $3,566 over the weekend. That would add credence to the bearish setup on the weekly chart and open the doors to $3,250 (200-week SMA).
- A quick recovery above $4,000 would abort the bearish setup, although the probability of BTC picking up a strong bid in the short-term is quite low.
- A convincing weekly close (Sunday’s UTC close) above the 200-week EMA $4,148 will likely put the bulls back into the driver’s seat and allow a stronger rally towards $5,000.
Â Disclosure:Â The author holds no cryptocurrency assetsÂ at the time of writing.