As of writing, the cryptocurrency is trading at $7,770 on Bitfinex, having been stuck in a narrowing price range (pennant) for months now.
Defense of $7,000 last week and the 9.3 percent rise from the last week’s low of $7,040 have neutralized the immediate bearish outlook and got investors talking about a possible rally to pennant resistance at $8,870.
While that target may appear far-fetched, it may be put to test if bitcoin can first scale the key 50-week moving average (MA) resistance (currently located at $7,819) in a convincing manner.
As seen in the chart above, BTC narrowly avoided a downside (bearish) break of the narrowing price range last week, turning higher from $7,040. A bearish breakdown would have signaled a resumption of the sell-off from the record high of $19,891 and could have pushed BTC below $6,000 (February low).
However, the rally from the last week’s low of $7,040 has neutralized that threat. While it’s still too early to say that bitcoin is now aiming for $8,880 (pennant resistance), the probability would rise sharply if we see an aggressive run above the significant resistance of the 50-week MA.
Such a move would invalidate the long-run bearish reversal indicated by the weekly close in the third week of May below the moving average. A move above the 50-week MA would also need to be backed by a solid rise in trading volumes to break out of the pennant.
In a promising sign for the bulls, the daily chart below shows that bitcoin is positioned for a convincing break above the 50-week moving average hurdle.
The upside break of the falling channel seen earlier this week indicates a short-term bearish-to-bullish trend change. The 5- and 10-day MAs are also biased to the bulls, as is the higher lows pattern indicated by the rising trendline.
So, a break above the immediate resistance at $7,780 (June 3 high) could yield a quick rally to $8,000. The bullish move would also add credence to “6th of the month” theory, which had hinted at a major bullish reversal based on an alternating monthly cycle.
- BTC could rally to $8,000 in the next 24 hours or so if the resistance at $7,780 is breached.
- BTC looks set to close this week (Sunday’s close as per UTC) above the 50-week MA of $7,819. In this case, the probability of a move higher towards pennant resistance of $8,880 would rise sharply.
- Bearish scenario: BTC could drop to pennant support at $7,080 if the bulls fail to capitalize on the positive setup seen in the daily chart and prices drop below $7,372 (June 5 low).
- A weekly close below$7,080 (downside break of the pennant pattern) could yield a sell-off below $6,000 (February low).
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