Indicator Suggests Bitcoin's $8K Price Rally Could Be Overstretched

Bitcoin bulls could have a breather after 40 percent month-on-month rally.

AccessTimeIconJul 24, 2018 at 11:00 a.m. UTC
Updated Aug 18, 2021 at 9:30 p.m. UTC

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Bitcoin (BTC) has had a bullish start to the week, but the momentum could wane in the next few days, technical studies indicate.

The leading cryptocurrency rose to a two-month high of $8,130 on Bitfinex today, having witnessed an inverse head-and-shoulders breakout last week.

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  • The 40 percent rally from the seven-month low of $5,755 reached on June 24 has put the bulls back in a commanding position. Hence, further gains could be on the cards, albeit after a brief pause or a price pullback as a key technical indicator is flashing overbought conditions.

    At press time, BTC is changing hands at $8,100 on Bitfinex.

    Daily chart

    bitcoin-daily-chart-3

    Notably, the relative strength index (RSI), one of the most widely used momentum indicators, jumped above 70.00 (overbought zone) earlier today and is currently located at 74.56 – its highest level since December.

    So, it could be said that bitcoin is at its most overbought level in seven months.

    As a result, the cryptocurrency may find it hard to gain a foothold above the immediate resistance of $8,140 (pennant resistance) in the next few days and could see a minor price pullback.

    That said, a technical correction, if any, will likely be short-lived as the other tools are biased towards the bulls. For instance, the 5-day and 10-day moving averages (MAs) are trending north, indicating a bullish setup.

    Meanwhile, the short duration charts are also calling a further price rally.

    4-hour chart

    The broadening wedge breakout seen on the chart above indicates a continuation of the rally from the July 17 low of $6,740. Accordingly, the attention has now shifted to the significant price obstacle of the 200-day MA, currently located at $8,676.

    View

    • BTC's break above $8,000 has bolstered the already bullish technical setup, however, overbought conditions could cap the upside around $8,150 over the next few days.
    • A pullback to ascending (bullish) 10-day MA, currently at $7,570 and seen sloping upwards to $7,700 in the next 48 hours, cannot be ruled out but will likely end up refueling the BTC freight train for a sustained move toward the 200-day MA of $8,676.
    • Only a daily close (as per UTC) below $7,221 (July 21 low) would abort the bullish view.

    Disclosure: The author holds no cryptocurrency assets at the time of writing.

    Steel spring image via Shutterstock; Charts by Trading View

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