Bitcoin Is Looking at a Short-Term Bull Reversal if Prices Pass $7,400

Bitcoin needs to break above $7,380 to confirm a short-term bull reversal and invite stronger buying pressure, the three-day chart indicates.

Specifically, the top cryptocurrency by market value created a hammer candle in the three days to Nov. 26. A hammer candle, which comprises of a long lower shadow and a small upper body, means the three-day period began with pessimism, but ended on a more optimistic note.

Stepping back, the cryptocurrency ran into selling pressure near $7,350 on Nov. 24 and fell to six-month lows near $6,500 on the following day. The drop, however, was short-lived and prices quickly rose back to $7,380 before printing a UTC close at $7,159 on Nov. 26. The recovery from $6,500 to $7,159 represents the long lower shadow of the hammer and the spread between $7,350 and $7,159 represents the body.

While the pattern is considered a bullish signal, traders usually wait for confirmation in the form of strong follow-through, preferably a convincing move above the high of the hammer candle. That means a break above $7,380 is needed to confirm a bullish reversal and possibly lead to a stronger recovery rally.

BTC is changing hands at $6,917, representing a 2.4 percent drop on a 24-hour basis, after a sudden drop soon before press time.

Many in the investor community are associating the latest decline with confirmation of a $49 million crypto theft at the South Korean exchange Upbit. The exchange said large ether transfers had been made to an unknown wallet.

Popular analyst Joseph Young, however, believes the price drop seen in the last few minutes may not be driven by the Upbit news.

The long lower shadow attached to the hammer candle indicates seller exhaustion. If the current three-day candle ends (Friday, UTC) above $7,380, a bullish hammer reversal would be confirmed. That would open the doors to $8,000.

On the other hand, a close below the hammer’s low of $6,515 would imply a continuation of the sell-off from highs above $10,000.

A move above $7,380 would activate twin bullish cues on the 4-hour chart: an upside break of the descending trendline and an inverse head-and-shoulders breakout on the line chart.

The
latter would create room for a rally to $8,245 (target as per the measured move
method).

That target looks possible, as the 14-day relative strength index is reporting oversold conditions with a below-30 reading.

Moreover,
the location of the hammer candle is a good reason to believe a stronger bounce
is in the offing.

A hammer candle represents bearish exhaustion, as noted earlier and gains credence when it appears following a notable price drop, which is the case here.

The pattern
has appeared following a sell-off from $10,350 to $6,515. The candle loses its
relevance at market tops and during consolidation.