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Bear Trap? Bitcoin Price Dips Below $10K on Low Volumes
Bitcoins drop from $10,949 to $9,855 (Wednesday low) may be a bear trap, as selling volumes have dropped throughout the price pullback.
A widely-tracked 4-hour chart indicator is reporting a bullish divergence and the daily candlesticks are signaling seller exhaustion. BTC could rise above $10,270, confirming a falling wedge breakout on the 4-hour chart.
A wedge breakout, if confirmed, would open the doors to $10,956 (Aug. 20 high). A UTC close above that level would confirm bull revival.
On the lower side, a high-volume drop below $9,855 could pave way for a deeper drop toward $9,500. Currently, that looks unlikely.
Bitcoin (BTC) has recovered from nine-day lows hit earlier on Wednesday and may pick up a strong bid during the day ahead.
The leading cryptocurrency by market value fell to $9,855 on Bitstamp during the Asian trading hours, the lowest level since Sept. 2. At that level, prices were down 11 percent from Fridays high of $10,950.
At time of writing, BTC is changing hands around $10,000, representing a 1.9 percent drop on a 24-hour basis.
BTCs drop into four figures seen earlier today validated the bearish view put forward by BTCsfailed breakouton the hourly chart on Monday.
Further, the daily chart is reporting bearish conditions with a lower-highs setup. The cryptocurrency has also found acceptance belowkeyhourly chart support of $10,060.
Even so, the sellers need to observe caution, as the recent pullback lacks volume support and may prove a bear trap, as seen in the chart below.
Selling volumes (red bars) have been consistently higher than buying volumes (green bars) through the price pullback from $10,950 to $9,855.
However, the red bars have produced lower highs, meaning the selling volume, or pressure, has eased along with the price.
A low-volume decline is often short-lived and ends up trapping the bears on the wrong side of the market.
Also, the pullback has taken the shape of a falling wedge on the 4-hour chart. A falling wedge comprises of converging trendlines connecting lower highs and lower lows and is widely considered a bullish reversal pattern.
A break above the upper edge of the falling wedge, currently at $10,270, would confirm a breakout and open the doors for re-test of the recent high of $10,949.
The breakout looks likely as the moving average convergence divergence (MACD) histogram, a widely-tracked trend following indicator, is reporting a bullish divergence higher lows contradicting lower lows on price.
The bullish case would weaken if prices drop below the previous long-tailed candles low of $9,855 with a solid rise in selling volumes (red bar breaches falling trendline).
The long tails attached to the previous three candles indicate dip demand near the daily lows or bearish exhaustion in effect, the sellers fought to keep prices lower, but lost as the buyers pushed the price up.
The daily chart also shows a steady drop in selling volumes in the last five days.
So, BTC may move higher, possibly to levels above $10,270 during the next 24 hours, confirming a breakout on the 4-hour chart.
The outlook as per the daily chart would turn bullish if prices invalidate the bearish lower highs setup with a UTC close above $10,956 (Aug. 20 high).
Disclosure:The author holds no cryptocurrency assets at the time of writing.
Bitcoinimage via Shutterstock;charts byTrading View
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This article is intended as a news item to inform our readers of various events and developments that affect, or that might in the future affect, the value of the cryptocurrency described above. The information contained herein is not intended to provide, and it does not provide, sufficient information to form the basis for an investment decision, and you should not rely on this information for that purpose. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.