BTC entered a near-term pullback after reaching overbought conditions at $42.6k last week. The price fell for four consecutive days, wiping out leveraged longs upon every new intraday low.
With 10 consecutive daily candles higher, extremely overbought conditions on the 4-hour and daily chart, the price at technical resistance, and the third-largest whale sending 3000 BTC to Coinbase, the market was flashing a major signal of a local top.
BTC immediately reversed and closed back below the top of the trading range, liquidating leveraged longs, positioned above 40k, anticipating a breakout.
The cryptocurrency fell below $40K and consistently pushed lower, dipping below the near-term support at $38.3k. Eventually, the hourly chart started showing early signs of bullish divergence as price continued to fall while the hourly relative strength index started trending higher.
BTC hit extreme levels on the 4-hour chart according to the TD Sequential Indicator, which measures consecutive moves in a specific direction. At one point, bitcoin fell for 16 consecutive candles on the 4-hour chart, flashing all five buy signals on the TD Sequential – something very rare to see in BTC price action shown in the chart below.
It continued to make near-term lower lows, particularly bouncing off this key trend line. Eventually, leveraged shorts began piling up, and a large number of buyers stepped in at the final test of the trend line, and BTC pushed significantly higher.
It’s important to note that the aggregate spot volume was declining during the near-term pullback, signaling large operators were testing the market for supply. Lower volume on drawdowns is a sign of supply exhaustion, a positive signal when completing consolidation phases.
BTC then printed a strong bullish engulfing candle, followed through to the upside the next daily candle, and is now retesting the top of the trading range between $40.9k and $41.3k.
The current conditions for BTC look favorable for a breakout. The technical structure has held, momentum is trending higher on the 4-hour, daily, and 3-day even with the near-term pullback. The 4-hour momentum, in particular, has been trending higher, starting to push back above neutral, with multiple bullish pulses firing.
On-chain analysis continues to show strong accumulation in long-term holders, large miners, and entities holding illiquid supply, which makes up for the majority of the total BTC supply.
Technical analysts have noted the more resistance is tested, the weaker it becomes, increasing the probability of a breakout higher.
As long as the above-stated confirmations continue to show strength, it appears BTC could potentially be preparing for a large breakout. The signal will be a strong close above $40.9k and $41.3k with high volume and large outflows of BTC from exchanges continuing the widely discussed supply shock.
If BTC can successfully break out of the trading range above $40.9k and $41.3k, this should send it to the next major levels of resistance at the 200-day moving average at $44.8k and the 21-week moving average at $44.3k.
The 200-day moving average and 21-week moving average are 2 critical levels BTC must reclaim in order to pave the path to retesting all-time highs at $64k. With the rate of illiquid supply increasing and long-term holders firmly refusing to sell at current levels, conditions look favorable for the largest cryptocurrency.
