Bitcoin has charted a falling wedge pattern on the daily chart. A break above $3,450 would confirm wedge breakout and expose the crucial resistance level lined up at $3,658 (the high of the gravestone doji candle created on Jan. 26). A violation there would expose the psychological resistance of $4,000.
The prospects of a falling wedge breakout would weaken if the cryptocurrency suffers a channel breakdown on the 4-hour chart.
The slow drip bitcoin (BTC) price sell-off seen over the last six weeks has produced a bullish pattern on the daily chart.
The leading cryptocurrency by market value is currently down more than 20 percent from highs above $4,200 seen on Dec. 24. The pullback may have reinforced the primary bearish trend, as represented by the long-term moving average studies.
Still, all is not lost for the bulls, as the lower highs and lower lows created over the last six weeks have converged, creating a downward sloping cone or a falling wedge on the daily chart.
The falling wedge is a bullish reversal pattern, that is, the price will often break above the upper edge of the pattern and rally. A breakout, if confirmed, would open the doors for a strong corrective rally.
As of writing, BTC is trading at $3,400 on Bitstamp, representing a 0.66 percent drop on the day. The falling wedge resistance is seen at $3,450.
Daily and 4-hour chart
BTC is trapped in a falling wedge – a bullish reversal setup – on the daily chart. Meanwhile, the cryptocurrency has created a minor rising channel inside the wedge, as seen in the 4-hour chart.
The prospects of BTC confirming a falling wedge breakout above $3,450 would drop if the rising channel support of $3,410 is breached. That would open up downside towards $3,314 (200-week moving average).
A wedge breakout, if confirmed, would open up upside toward $3,658 – the high of the bearish gravestone doji candle created on Jan. 26.
On the weekly chart, both 5- and 10-candle MAs are trending south indicating a bearish setup. The falling volume bars, however, indicate bearish exhaustion. BTC, therefore, could witness a falling wedge breakout, despite the bearish primary trend.
Disclosure: The author holds no cryptocurrency at the time of writing.
Bitcoin image via CoinDesk archives; charts by Trading View