Three Reasons Why Bitcoin Price Rally Has Stalled

16/04/2019 - huy
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Bitcoin’s recent price rally has stalled and signs of indecision are evident in the market just a week after a big bullish breakout.

 

The leading cryptocurrency closed at $5,190 on April 7, confirming an upside break of a bearish channel – the same pattern that paved the way for a bull market in 2015.

 

So far, however, the follow through to that bearish-to-bullish trend change has been anything but bullish.

 

The cryptocurrency witnessed two-way business last week, clocking a high and low of $5,347 and $4,912 before closing almost flat at $5,162.

 

So, the rally looks to have stalled due to the following three factors:

 

Overbought conditions

 

 
Bitcoin’s 14-day relative strength index (RSI), a widely followed technical indicator, jumped above 70.00 on April 2, signaling overbought conditions as the price jumped over 18 percent to highs above $5,000.

 

With the price climbing further to a 4.5-month high of $5,345, the RSI rose to near 90 levels, the highest since December 2017.

 

An extreme overbought reading is considered a sign the rally is overdone and is usually followed by a reaction – a price pullback or a consolidation, as is the case currently with bitcoin.

 

Prices then made numerous failed attempts to convincingly scale $5,300 in the eight days before a drop to $4,912 on April 12.

 

Bearish volume divergence

 

 
Bitcoin’s 24-hour trading volume across all cryptocurrency exchanges, as calculated by CoinMarketCap, doubled to $21 billion on April 2, validating the bearish-to-bullish trend change signaled by the break above the key resistance of $4,236 and the rally to $5,000.

 

As the cryptocurrency extended gains further to a fresh 4.5-month high of $5,347 on April 8, though, trading volumes tapered off to $17 billion, reinforcing the overstretched conditions reported by the 14-day RSI.

 

Hence, the pullback to $4,912 (Friday’s low) was not surprising. Prices have recovered by more than $200 over the weekend, but volumes are down further, to $10 billion. So, the recovery could be short-lived.

 

Forcing out weak hands before building breakout

 

 
The financial markets often test buyers’ resolve by revisiting former resistance-turned-support before building on a major bullish breakout. And that seems to be the case here.

 

For instance, BTC cleared the 100-day moving average (MA) hurdle on Feb. 19. The newfound support, however, was put to test multiple times in the 10 days to March 4 before a sustained move higher.

 

On similar lines, prices fell back below the psychological support of $5,000 last Friday and may drop even further to the 200-day MA, currently at $4,527, as the average is widely considered a barometer of a bullish/bearish trend.

 

The case for BTC shaking out weak holders with a drop to the 200-day MA looks stronger if support a $4,912 is breached.
 
 
 
According to Coindesk
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