Bitcoin’s $780 recovery from an 18-day low has neutralized the bearish setup, but a strong follow-through is now needed to put the bulls back in charge.
The leading cryptocurrency by market value picked up a bid around $9,600 – the lowest level since Sept. 1 – in the Asian trading hours on Thursday and rose to a high of $10,380 on Bitstamp in the U.S. trading hours.
That quick recovery saved the day for the bulls, as the cryptocurrency was looking weak below key support at $9,855, as discussed yesterday.
Notably, the price bounce from $9,600 to $10,380 has taken the shape of a candlestick pattern named “bullish hammer”, as seen in the chart below.
A bullish hammer comprises a long lower shadow, a small body and little or no upper shadow. It occurs when an asset erases a big early drop to end the day on a positive note at or near the day’s high.
On Thursday, BTC fell to $9,600 only to rise all the way back to $10,380 before printing a UTC close at $10,271 – up 1.18 percent on the day.
A hammer is widely considered an early warning of an impending rally. However, traders usually wait for a strong follow-through – preferably a UTC close above the hammer candle’s high – before hitting the market with fresh bids.
The focus, therefore, is on today’s UTC close. Acceptance above the hammer candle’s high of $10,380 will likely invite stronger buying pressure and yield a rise to $11,000.
As of writing, BTC is changing hands at $10,140 on Bitstamp, having clocked a high of $10,308 earlier today.BTC has created a bull flag – a continuation pattern on the hourly chart. A breakout, if confirmed, would imply a resumption of the rally from $9,600 and create room for a rally to $10,950 (target as per the measured move method).
The probability of BTC printing a convincing close well above $10,380 would rise if the flag ends with a bullish breakout.
While a close above $10,380 is expected to bode well for BTC, a full bull revival needs an upside break of a three-month contracting triangle seen in the chart below.
The upper and lower edges of the triangle are currently located at $10,822 and $9,450, respectively.
A close above $10,822, if confirmed, would imply a resumption of the rally from lows near $4,000 seen on April 2.
The lower edge may come into play if the cryptocurrency closes below $10,000 today, taking the shine off the bullish hammer candle.
Disclosure: The author holds no cryptocurrency assets at the time of writing.