After a strong performance over the weekend, Bitcoin is showing signs of life.
The Bitcoin price spiked on Friday afternoon. It was a move of almost 13% from top to bottom ($5800 to $6545). The price is now consolidating and has held onto to majority of its Friday gains.
Although the volume behind this move wasn’t huge, it has clearly broken above an important resistance trendline. Furthermore, after hovering around the important $6000 level and temporarily dropping to $5800, it avoided a clear break of support by instead breaking to the upside. Looking at the week ahead we have further reason to be bullish:
- Price action formed consecutive higher lows (L1-L2) and higher highs (H1-H2). This is a valid bullish reversal setup based on Dow theory. Dow theory is one of the foundational principles of technical analysis. Having been in a downtrend, this reversal setup suggests that a new uptrend is developing.
- A falling wedge pattern has developed denoted by blue lines. This is a bullish pattern as the price is generally expected to break through the upper trendline supported by an increase in volume. Friday’s move saw us break out of this pattern and the consolidation above the breakout point over the weekend leaves us well positioned for further upside.
- Bullish divergence on the RSI (relative strength index) denoted by red arrows. The RSI provides a measurement of the momentum of the price movements. The red arrow on the RSI shows that it made a higher high, whilst the price over the same period dropped. The RSI acts a leading indicator which suggests that the price will move upward based on the underlying increase in price momentum as indicated by the RSI.
Are these the first signs of spring for a hibernating Bitcoin? At least, for now, these are positive short-term indicators and it appears less likely we will break the support level between $5800 and $6000 as some feared.
However, we will need to see at least a second significant impulsive upside move, supported ideally by higher volume than this initial breakout to give us reason to believe with greater conviction that the Bitcoin winter is truly coming to an end.
At least in the short-term, a Bitcoin price showing some strength will provide conducive conditions for altcoins to rally. This should provide more attractive trading opportunities than Bitcoin itself. I am keeping a close eye on $FUN, $ZIL, $POLY and $CNN.