Bitcoin has pulled back sharply over the last 48 hours, but is holding well above support near $6,850 keeping the short-term bullish bias intact.
The top cryptocurrency is currently trading near $7,330, representing a 7.3 percent drop from the high of $7,870 registered on Friday.
With the pullback, bitcoin has erased more than 45 percent of the corrective rally from the six-month low of $6,515 hit on Nov. 25.
As a result, many in the investor community, including the likes of popular trader and analyst Josh Rager, believe the relief rally has ended and the overall bearish trend, as represented by the drop from $10,000 to $6,500, has likely resumed.
That argument appears logical with the daily chart reporting a fresh lower-high pattern.
Daily chart and 8-hour charts
Bitcoin jumped to $7,800 on Friday, as expected, but faced rejection at the resistance of a trendline sloping downwards through Oct. 26 and Nov. 15 highs.
The cryptocurrency also failed to close (UTC) above $7,775 – the 38.2 percent Fibonacci retracement of the drop from $10,350 to $6,511.
In effect, the bulls could not preserve the upside momentum after Friday’s rejection at key levels and the cryptocurrency has faced selling pressure ever since.
Bitcoin has now established a “bearish lower high” at the falling trendline resistance.
Further, the 8-hour chart is now reporting a flag breakdown, which implies a resumption of the sell-off from recent highs near $10,350.
All that said, a bullish reversal pattern confirmed last week on the three-day chart is still valid.
BTC created a hammer candle in the three days to Nov. 26, signaling seller exhaustion following a notable sell-off.
More importantly, the cryptocurrency rallied 8 percent in the three days to Nov. 29 and found acceptance above the hammer candle’s high of $7,380, marking a strong follow-through to the hammer candle and confirming a short-term bearish-to-bullish trend change.
The bullish pattern would be invalidated if and when bitcoin find acceptance under $6,847 – the low of the green candle.
Hourly and daily charts
The pullback from $7,870 lacks substance, with trading volumes dropping over the last 48 hours. A low-volume pullback is often short-lived.
Meanwhile, the daily chart MACD histogram, an indicator used to identify trend changes and gauge the strength, is offering a bullish signal with an above-zero reading.
As a result, bitcoin looks unlikely to violate support at $6,847 and may rise back to the falling trendline resistance, currently at $7,665.
The short-term bullish case would strengthen if prices manage to clear the lower high at $7,870 established over the weekend.
It’s worth noting that, as per technical analysis theory, setups on longer time frames take precedence over intraday charts. So, while bitcoin is looking heavy on the 8-hour and daily charts, the pattern on the three-day chart warrants caution on the part of the sellers.
Author: Omkar Godbole
Source: Coindesk: Bullish Bitcoin Chart Pattern Still Intact Despite 7% Price Drop