Outlook

  • Bitcoin's daily chart RSI suggests scope for a short-term price consolidation with downside capped near key Fibonacci level of $30,702.
  • A breakout above the hourly chart 50-candle SMA will alleviate immediate downside pressure, but the resistance above $40,000 is expected to contain strength.
  • Failure to defend support near $30,702 would strengthen bearish mood and allow for slippage toward $28,000.

Bitcoin's downward move may soon run into consolidation as a widely-tracked technical indicator is giving oversold signals for the cryptocurrency.

The 14-day RSI (relative strength index), counted among trading’s most popular indicators, has dipped below 30, implying the cryptocurrency is overextended to the sell side.

The RSI, a momentum oscillator that measures speed and change of price movements, oscillates between 0 to 100 and helps traders identify overbought and oversold conditions. An oversold RSI indicates the asset is primed for a bear breather in the form of rangebound trading or minor price bounce and should not be taken as an early warning of bullish reversal.

Thus, bitcoin may establish a new trading range between $30,000 to $40,000 over the next few days.

The cryptocurrency fell by 25% in the week ended May 23, extending the retreat from the record high of $64,899 seen in mid-April, according to the price chart provided by TradingView.

Prices hit a 3.5-month low of $30,000 on May 19, pushing the daily chart RSI below 30.

BTCUSD daily chart 1

The bears may struggle to penetrate support at $30,702, the 161.8% Fibonacci extension level of the recent sell-off, in the short-run, as the RSI is flashing an oversold signal.

Further, three out of the previous five candles are carrying long tails, a sign of bear fatigue.

Thus, a bounce to the hourly chart 50-candle SMA (simple moving average) could be seen. At the time of writing, the average is stationed at $36,167. A move above that may allow progress toward the 200-day average at $40,378.

A convincing move above the 200-day SMA looks difficult as bulls do not have much to lean on at this time. The steep slope of the 5- and 10-day SMAs indicates the bearish momentum is quite strong. The 50 and 100-day SMAs have charted a bearish crossover.

BTC weekly chart 2

Support at $41,986 (January high) has been breached on the back of strong volumes. The weekly RSI has turned bearish with a drop below 50, the first since April 2020.

A violation of support at $30,702 would expose support of the 50-week SMA located at $28,276.

This is a guest post. Investing in cryptocurrencies is speculative and investors should carefully conduct all research and diligence before making trades.