Bitcoin Breaches First Resistance; More Gains to Follow?

bitcoin price chart

Bitcoin, now trading at $434.67, has successfully breached the first resistance of $416, discussed earlier in Bitcoin Could Be Preparing For A Mega-Bull Rally. At the current level, Bitcoin is repeatedly testing the next overhead resistance beyond which lies a huge upside. The technical indicators are also becoming conducive for a bullish breakout.

In this analysis, we will discuss the technical factors which are indicating a rally from here on while also foreclosing the risks involved.

To conduct Bitcoin’s technical analysis, we will use the daily BTC-USD price chart taken from Tradingview.com. The data used is from BITSTAMP exchange.

Now, as we can see from the chart above, the cryptocurrency has been trading in a contracting channel since late last year. In its fourth price reversal (marked in the chart above), the cryptocurrency struggled near the resistance of $416 before breaching it decisively. The gains have now been limited by the downward-sloping resistance trendline.

Apart from this, the technical indicators are well supportive of this rebound. The 14-day Relative Strength Index has steadily risen to 68.2688 while the MFI for the same period surged to 79.2342.

Another thing that is comforting the bulls is the support lent by the simple moving averages. The 9-day SMA of $414 is the immediate support for the cryptocurrency; this roughly coincides the previous resistance of $416 (which will now act as a support). The next important support level is the 30-day SMA of $390.

But amid all this bullishness, there is one thing that can puncture the optimism. It is the fear that Bitcoin may have become overbought from a technical perspective. MFI readings closer and above 80 do suggest overbought conditions. The RSI is also in close proximity to its overvalued boundary of 70. These factors may lead to a pullback in Bitcoin price.

Conclusion

Although I believe that the recipe for a bullish breakout is in place, an adverse move cannot be ruled out. As per the current considerations, I would not suggest immediately going long but would advise waiting for conservative levels below $400 to mitigate the downside risks.

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