logo

FX.co ★ Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

Bitcoin has been in a downtrend for a month, causing panic and uncertainty in the market. Most investors assume that the asset has moved to the bear market's stage. Therefore, it is ineffective to expect a renewal of historical highs in the near future. At the same time, the cryptocurrency drops below the level of $40,000, however later it rebounds sharply above $42,000. Should this momentum be considered as a reversal signal or just a manipulation by the players?

Having made a false breakout of the $40,000 support line, the main cryptocurrency confidently climbed above $42,000. As of 11:30, bitcoin is trading around $42,800. It is a positive signal indicating the emergence of buying volumes and a strong support area of $39,600-$40,000. It can be assumed that the asset has reached the local bottom and a trend reversal is ahead. First of all, it is indicated by network and social metrics. According to them, the cryptocurrency is within a bear market. The fallacy of these assumptions was proved by a false breakout of $40,000 and liquidation of short positions.

Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

However, the US Federal Reserve Chairman is to speak about a rate hike on January 12. Notably, the unexpected news about the key rate hike harmed the markets of high-risk assets. Leading analytical and investment companies, like Goldman Sachs, are confident in the rate hike. This fact will negatively affect the quotations and capitalization of the cryptocurrency market. In this regard, I expect increased volatility and a retest of the $39,600-$40,000 support zone in case the news turns out to be pessimistic. If the asset again defends this boundary, the probability of impulse upward rally above $44,000 will increase.Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

I am inclined to believe that bitcoin will hold and resume upward movement. First of all, it is indicated by the crowd sentiment. According to it, the cryptocurrency has exhausted its upside potential and will continue to decline. Bearish confidence generates demand for shorts. Bulls use them as fuel for an impulse upward spurt. Large investors are bolstering confidence in the rising price and cumulating the coins. The trend intensified as the BTC price dropped into the range of $48,000-$40,000. After the false breakout of $40,000, buying volumes increased and technical indicators turned bullish: MACD completes the bullish crossover formation and stochastic breaks into the green zone, realizing upward momentum. RSI index again crossed the level of 40, indicating the growth of buying volumes and buyers' slight dominance.

Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

Underlining the similarity of the current period to May-June 2021, I want to focus on the performance of the Fear and Greed Index. After bitcoin's strong momentum rebound, the metric has recovered to 22, however it has been gravitating below 10 for the past three days. Notably, this low Fear and Greed Index was observed during the May price drop to local lows. Overall, this similarity is not effective for analysis. Taking into account the similar route of the price movement, certain conclusions can be drawn. The final part of the correction is approaching. After a brief consolidation in the area of $40,000-$45,000 the impulse growth and gradual movement to the highs is expected.

Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

Bitcoin makes false breakout and recovers above $42,000: is trend reversal possible?

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
Go to the articles list Go to this author's articles Open trading account