The bitcoin-US dollar (BTC/USD) exchange rate is gaining altitude after the bearish Doji reversal seen earlier this week failed to keep the cryptocurrency below its 50-day moving average. At press time, bitcoin is trading at $4,325; up 1.46 percent as per data from CoinMarketCap. The two-day sell-off ran out of steam earlier today at the low of $4,150. The subsequent rebound then gathered pace above the 50-day moving average of $4,187. However, the rebound from the 50-day moving average support seen in the one hour indicates the fears over the event are overblown. So, is bitcoin set to fly high or is the rally a bull trap? The price action analysis suggests the cryptocurrency is currently hovering in the no man's land.
Daily chart
A solid rally from the 50-day moving average support, though encouraging, is not enough. BTC needs to take the rising trend line, in which case the odds of a rally to $4,700 levels would improve significantly.
4-hour chart
Golden crossover was confirmed on Tuesday. Rally from the low of $4,150 to $4,325 adds credence to the argument that moving average crossovers tend to work after a time lag.
Bearish Scenario - Potential Head and Shoulders
But while there's reason for optimism, bitcoin is not out of the woods yet. Investors need to watch out for a failure at the resistance offered by the rising trend line as it could lead to a head and shoulders pattern. Head and shoulders formation consists of a left shoulder, a head, and a right shoulder and a line drawn as the neckline. A break below the neckline indicates a bearish trend reversal.
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- An end of the day close above the rising trend line would open doors for a rally to $4,700
- Meanwhile, a failure to take the rising trend line followed by a break below the head and shoulders neckline support of $4,170 would open up downside towards $3,870.