Despite the bearish chart setup, bitcoin (BTC) rose to a six-day high on Monday, putting a corrective rally to $7,000 back on the map.
The leading cryptocurrency unexpectedly picked up a bid around $6,450 at 16:00 UTC yesterday and rose to $6,850 – the highest level since June 12, according to Bitfinex data.
The $400 rally may have trapped a few bears on the wrong side of the market, given the pennant breakdown on the 4-hour chart had called for a drop to $6,000.
Yesterday's gravity-defying price action in BTC has boosted the odds of a rally to $7,024 (23.6 percent Fibonacci retracement of the sell-off from $9,990 to $6,108). However, the long-run outlook remains bearish for now.
At press time, bitcoin is changing hands at $6,700 on Bitfinex.
As seen in the chart above, the 4-hour candle crossed the upper Bollinger band in a convincing manner yesterday, signaling a bullish Bollinger band (standard deviation of +2 and -2 on 20-candle moving average) breakout.
Trading volume also picked up (circled on chart), adding credence to the bullish move. Meanwhile, the cryptocurrency has also found acceptance above the 50-candle moving average (MA) and the relative strength index (RSI) is biased bullish (above 50.00).
So, BTC will likely clear the immediate resistance at $6,736 (yellow dotted line) and test supply around $7,024 (23.6 percent Fibonacci retracement of the drop from $9,990 to $6,108) in the next 24 hours.
It's worth noting that the descending (bearish) 100-candle MA is located at $7,045, marking a key resistance level for the bulls.
The positive Bollinger band setup also validates the argument put forward by the bullish price-relative strength index (RSI) divergence last week that the cryptocurrency has found a temporary low at around $6,100.
BTC closed above the 10-day MA yesterday, invalidating the immediate bearish outlook. It also created a bullish outside-day candle on Monday (price action engulfed Sunday's high and low) – that is, the day began on a pessimistic note, but ended optimistically. Thus, the probability that the corrective rally will gather traction is high.
Compass image via Shutterstock
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