- Bitcoin has backed off 4 percent from three-week highs seen on Friday, but looks to have formed a bull flag – a bullish continuation pattern – on the 4-hour chart.
- A move above $3,630 would confirm a flag breakout and open the doors to $4,000 (target as per the measured move method).
- Acceptance below the lower edge of the flag, currently at $3,546 would weaken the short-term bullish case. That, however, looks unlikely, as the path of least resistance is to the higher side, according to Friday’s high-volume falling wedge breakout.
Bitcoin’s overnight pullback from three-week highs hit on Friday doesn’t mean the rally is over.
The cryptocurrency is currently trading at $3,560 on Bitstamp, having clocked a three-week high of $3,711 on Feb. 8. The 4 percent correction was preceded by repeated failures at the 50-day moving average (MA) resistance, currently at $3,633.
Even so, the prospects of a stronger short-term rally toward $4,000 look strong, as the price pullback has carved out a bull flag on the technical charts. That pattern represents a pause, which often ends up extending the preceding bullish move.
A break above the upper edge of the flag, currently at $3,630, would confirm a breakout and could be followed by a rally to $4,000 (length of the preceding bullish move added to the breakout price).
BTC’s move to highs above $3,700 on Friday confirmed a falling wedge breakout on the 4-hour chart. The short-term outlook, therefore, is bullish. Validating that positive development is a bull cross of the 50- and 100-candle moving averages.
Put simply, the bulls appear to be in control and could soon force a flag breakout.
It’s worth noting, though, if the bulls don’t act soon, then the flag’s horizontal length (duration) would exceed the pole’s height in the next few hours, deeming the bullish continuation setup invalid. The RSI has also dropped into bearish territory below 50 and the MACD (moving average convergence divergence) is close to turning negative.
So, the bulls need progress soon to stop BTC finding acceptance below flag support at $3,546. That would shift risk in favor of a drop to $3,400.
On the daily chart, the 5- and 10-candle MAs are trending north, indicating a short-term bullish setup.
A bull flag breakout, if confirmed, could yield a convincing move above the 50-candle MA – a level, which has acted as stiff resistance in the last 72 hours.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Article Source: http://www.coindesk.com