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- Bitcoin’s low-volume price consolidation has taken the shape of a bull flag on the 4-hour chart. A break above $3,930 would confirm a flag breakout and open the doors to $4,330 (target as per the measured move method).
- The flag breakout looks likely, as the longer duration charts are biased bullish: Monday’s high-volume triangle breakout is still valid, while a bullish crossover between the 5- and 10-day exponential moving averages (EMAs) on the 3-day chart indicates a positive shift in market sentiment.
- Another failure to take out $4,000 could yield a pullback to the 100-day moving average, currently lined up at $3,782.
Bitcoin’s three-day price consolidation looks to be a bull breather before a continuation of the recent rally to above $4,000.
The leading cryptocurrency by market value is currently trading largely unchanged on the day at $3,920 on Bitstamp. Notably, prices are trapped in a narrowing price of $4,000 to $3,860 for the third consecutive day.
As a result, traders may feel tempted to question the reliability of the high-volume triangle breakout, confirmed on Monday. The bearish-to-bullish trend change, however, will remain valid as long as prices are held above $3,614, as discussed yesterday.
Trading volumes have dropped 43 percent from the nine-month high of $9.93 billion seen on Tuesday, according to CoinMarketCap. So, the pullback from highs near $4,000 to $3,900 is likely nothing more than temporary bullish exhaustion.
Further, BTC seems to have created a bull flag pattern – a pause which often refreshes on the higher side – on the technical charts. Therefore, the cryptocurrency could soon pick up a strong bid and rise above $4,000.
4-hour chart
A 4-hour close above the upper edge of the flag, currently at $3,930, would confirm a bull flag breakout and open the doors to $4,330 (target as per the measured move method).
The RSI, currently at 63, is again reporting bullish conditions, as opposed to overbought readings seen three days ago.
Major averages – 50, 100 and 200 – are also trending north indicating a bullish setup.
Daily chart
On the daily chart, BTC has bounced upwards at the ascending 5-day moving average (MA), reinforcing the bullish view put forward by the short-term MA studies.
A high-volume break above $4,000 would bolster the already bullish technical setup and allow a rally to December highs above $4,200.
A less-likely close below Monday’s low of $3,614 would abort the bullish view.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; charts by Trading View