Bitcoin looks to have found a price bottom over the last two days and may soon witness a stronger recovery rally.
The top cryptocurrency formed a doji candle on Sunday, signaling seller exhaustion at the one-month low of $8,410 and aborting the sell-off from the recent high of $10,500.
While Sunday’s candle warned of a potential price bottom near $8,400, a 4.5 percent rise Monday confirmed it. So, stronger buying interest could emerge in the short-term, powering the cryptocurrency to key resistance levels above $9,000.
The risk reset in the traditional markets is also supportive of gains in bitcoin. The S&P 500, Wallstreet’s equity index and the benchmark for global equities, surged by 4.6 percent on Monday on hopes for coordinated interest rate cuts by major central banks.
S&P index futures are currently reporting a 1 percent gain. Meanwhile, gold has recovered to $1,600 from Friday’s low of $1,563. The recovery may continue, possibly helping bitcoin gain altitude, as the Reserve Bank of Australia cut rates by 25 basis points early Tuesday and markets are expecting the Federal Reserve and the European Central Bank to follow suit later this month.
Bitcoin dropped sharply last week along with stocks, which took a beating on fears that a coronavirus pandemic would put a sizeable dent in global economic growth. Gold also declined last week, reportedly due to margin calls.
At press time, bitcoin is changing hands near $8,840, according to CoinDesk’s Bitcoin Price Index.
Bitcoin has defended the trendline rising from December and January lows with a bullish doji reversal pattern comprising of Sunday’s doji candle and Monday’s positive follow-through.
As a result, the path of least resistance is on the higher side. The cryptocurrency could challenge resistance at $9,075 (Feb. 4 low) in the next 24 hours. Acceptance above that level would shift the focus to $9,312 (Feb. 19 low) and the head-and-shoulders neckline resistance at $9,500.
The outlook would turn bearish if prices close under Sunday’s low of $8,410. That would likely bring in additional losses toward $8,213 (Feb. 24 low) and $8,000.
The pullback from Monday’s high of $8,980 took the shape of a bull flag – a pause that often ends up accelerating the preceding upward move.
The hourly candle at 09:00-10:00 UTC Tuesday closed above the upper end of the flag, confirming a breakout and opening the doors for a rally to $9,230 (target as per the measured move method).
If the breakout fails, a fresh drop toward $8,500 may be seen. A failed breakout is a powerful bearish signal.
Disclosure: The author holds no cryptocurrency at the time of writing.
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