Bitcoin Bounces Back to $8K from Historically Strong Price Support
Bitcoin (BTC) has again defended historically strong price support near $7,700, keeping the hopes of a corrective rally alive.
The top cryptocurrency faced selling pressure and fell below $8,000 over the weekend, contradicting the possibility of a recovery rally above $8,500 suggested by a key technical indicator on Friday.
Even so, all is not lost for the bulls, as the widely-tracked 100-week moving average (MA) support has held ground. BTC almost tested the key technical line at $7,753 in the Asian trading hours before rising back above $8,000 around 12:20 UTC.
Notably, the long-term MA has been acting as strong support since the last week of September. Now, the bears’ repeated failure to penetrate key support may draw bids from short-term traders, yielding a corrective rally.
BTC’s defense of the 100-day MA may also excite long-term investors, as the MA had served as a base during nascent stages of the previous bull market, as seen in the chart below.
Bitcoin picked up a bid at lows near $200 in August 2015 and found acceptance above the 100-week MA in December. The cryptocurrency then faced buyer exhaustion above $460 and fell back to the 100-week MA support in the week ended Jan. 17, 2016.
The support level, then located at $367, was defended in the following three weeks, after which BTC never looked back and went on to hit a record high of $20,000 by December 2017.
Essentially, BTC created a higher low along the 100-week MA seven months ahead of the mining reward halving, which took place in August 2016.
The price action seen this year looks very similar to the one seen in 2015-2016. For instance, BTC bottomed out in the first quarter and rose to a high of $13,880 at the end of June before falling back to the 100-week MA.
More importantly, the latest defense of the 100-week MA comes seven months ahead of the next reward halving, scheduled for May 2020.
If history repeats itself, BTC could chart a solid bounce from the 100-week MA support over the next few weeks.
Moreover, many observers view the current dip as an opportunity to board the bitcoin feight train. For instance, George McDonaugh, CEO and co-founder of KR1 plc, the London-listed cryptocurrency and blockchain investment company, told CoinDesk Markets he expects bitcoin to surpass the all-time high of $20,000 in the first half of 2020.
The short-term technical charts are also calling a corrective bounce.
Daily and weekly chart
Bitcoin’s recent drop to sub-$7,800 levels is accompanied by falling trading volumes (above left). A low-volume drop is often short-lived.
Further, the oversold reading on the 14-day relative strength index (RSI) has gained credence due to signs of seller exhaustion near the 100-week MA. At the same time, the MACD histogram is producing shallow bars below the zero line, a sign of weakening bearish momentum.
All-in-all, a bounce to the 200-day moving average (MA) at $8,564 still looks likely. A violation there would expose resistance at $8,833 (June 2 high).
If prices find acceptance below the 100-week MA at $7,753, the case for a corrective rally would weaken and the cryptocurrency would likely drop to $7,200. Note that the weekly chart indicators are biased bearish.
As of writing, BTC is changing hands near $8,000 on Bitstamp, representing a 0.7 percent drop on a 24-hour basis.