The rebound in the bitcoin-U.S. dollar (BTC/USD) exchange rate from the recent low of $2,980 has stalled around the $4,000 level, raising doubts as to whether the rally will continue.
As per CoinMarketCap, the digital currency was trading at $3,850 at press time – down 1.68 percent in the last 24 hours. Week-on-week, BTC is up 19 percent. On a monthly basis, BTC is down 3.7 percent.
While there was a knee-jerk sell-off of bitcoin earlier this week following China’s crackdown on cryptocurrency trading, the panic was short-lived.
On September 15, bitcoin staged a solid rebound from the 100-day moving average levels in the wake of an oversold relative strength index. A similar price action in July had yielded a record rally to $5,000 levels.
However, the assumptions that China’s crypto trading crackdown will not have a long-term impact seem to have waned. This is evident from the price action analysis, which points to bullish exhaustion around $4,000 and a lack of substance in the rally from $2,980.
ATR signals lack of buying pressure
The chart reveals a descending broadening wedge formation – a megaphone-shaped pattern with lower peaks and lower valleys. The breakout direction is upward more than 70 percent of the time.
However, in the bitcoin’s case, the odds of an upside breakout look weak, if the lack of buying pressure/lack of substance as shown by the average true range (ATR) indicator is taken into account.
ATR is a volatility indicator that reveals the degree of interest or disinterest in a move. A bullish reversal with an increase in ATR shows strong buying pressure/high interest and adds credence to the reversal.
Bitcoin’s reversal from $2,908 has been accompanied by a drop in the ATR, however, which indicates lack of enthusiasm in the move.
- ATR shows bitcoin’s recovery from the low of $2,908 was the result of the unwinding of the shorts.
- Lack of strong buying pressure and a failure to hold above the 50-day moving average indicates the cryptocurrency is likely to leave a lower high around $4,000 and drop to the 100-day moving average level of $3,252.
- Only an upside break of the descending broadening wedge pattern would boost the odds of bitcoin rallying to record high above $5,000.
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.