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Despite an $800 fall on Wednesday, bitcoin’s broader trend remains bullish with prices holding above the higher low of $9,075 (Feb. 4 low).
However, yesterday’s bearish engulfing candle has shifted risk in favor of a drop to that level.
A move back above a short-term moving average at $9,800 could force sellers to reassess their positions.
Bitcoin took its biggest daily fall in three months on Wednesday, potentially trapping the bulls on the wrong side of the market.
Prices were rejected near $10,300 during the U.S. trading hours and fell sharply by $800 to levels near $9,300 in the 30 minutes to 22:00 UTC before closing the day near $9,600 – down over 5.5 percent on the day. That’s the biggest single-day drop since Nov. 21, according to CoinDesk’s Bitcoin Price Index (BPI).
As can be seen above, bitcoin has dropped by more than 3 percent in just 13 days in the last 4.5-months and in five days so far this year. These numbers, when taking into account bitcoin’s solid rally from $6,850 to $10,500, indicate market sentiment has been quite bullish since the start of the year.
As a result, Wednesday’s 5.5 percent slide could be referred to as a bull breather or pullback. The slide was expected following the confirmation of the golden crossover – the bull cross of the 50- and 200-day MAs – on Tuesday. The golden cross is a lagging indicator and often marks temporary market tops.
That said, the broader trend is still in the bullish zone with prices holding well above key support near $9,100. At time of writing, bitcoin is changing hands just below $9,620 on Bitstamp, while its global average price, as represented by the BPI, is seen at $9,626.
Daily chart
However, the risk of a slide to $9,075 has increased with Wednesday’s losses, which have activated twin price-negative cues: a big bearish engulfing candle and a new lower high at $10,300 (marked by arrow above).
So, the bulls need to act soon by pushing the cryptocurrency above the descending 5-day MA at $9,800. A sustained break above the short-term average may cause some sellers to rethink their bias.
4-hour chart
Bitcoin remains trapped in a descending broadening channel, as seen on the candlestick chart (above left). Meanwhile, it has charted a head-and-shoulders pattern on the line chart (above right).
A break below the neckline support at $9,575 would confirm a head-and-shoulders breakdown and strengthen the case for a slide toward $9,000.
If prices again defend the 200-candle average at $9,400, the selling pressure would likely weaken, allowing scope for a stronger bounce.