The bitcoin market is telling a tale of bullish exhaustion with indecisive price action following a rise to the highest point since November.
The top cryptocurrency witnessed two-way business on Wednesday. Prices rose from lows near $8,550 seen during the Asian trading hours to a two-month high of $8,903, only to end the day (UTC) on a flat note at $8,808, according to CoinDesks Bitcoin Price Index.
Essentially, bitcoin created a doji candle, which is widely considered a sign of indecision in the marketplace.
In this case, however, the candle could be considered a sign of buyer exhaustion, as it has appeared following a sharp rally from $6,850 to $8,900 and suggests the indecision is predominantly among the bulls.
The price action seen so far today is telling the same story. The cryptocurrency fell from $8,800 to $8,575 during the Asian trading hours and has struggled to chart a strong bounce ever since. This is in contrast to the quick reversals from sub-$8,600 levels seen in the previous two days.
At press time, bitcoin is trading near $8,600, representing a 1 percent drop on a 24-hour basis.
Bitcoin now risks a deeper pullback below Wednesdays low of $8,555. A drop through that support would validate buyer exhaustion signaled by the doji candle (above left), attracting selling pressure.
It would also confirm a double-top breakdown on the hourly chart (above right). That would open the doors for $8,210 (target as per the measured move method).
That said, the short-term outlook would turn bearish only if any pullback ends up violating the bullish higher low of $7,667 created Jan. 10.
That, however, looks unlikely with the 5- and 10-day averages continuing to trend north. These averages, currently located at $8,508 and $8,276, respectively, tend to reverse pullbacks when they are on an upward trajectory. Further, the longer duration charts have recently turned bullish.
Wednesdays high of $8,903 will likely come into play if prices violate the lower high of $8,705 seen on the hourly chart in the next few hours.
A break above $8,900, a level that has acted as strong resistance in the last 48 hours, would likely invite stronger buying pressure, yielding a quick move to the 200-day average at $9,100.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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