It's safe to say Friday wasn't the most stable day for the (BTC/USD) exchange rate.

After news of exchange shake-ups in China triggered a wave of panic selling, prices fell below $3,000 for the first time in months. Overall, this was the lowest total observed on the CoinDesk Bitcoin Price Index since August 5, when a V-shape recovery saw prices rise all the way to $3,875.

Yet, just a few days later, the price is already back at that level, having gained 33% in three days.

The sharp recovery could be attributed to oversold technical conditions and to the relief offered by news that China’s exchange ban would not impact all forms of cryptocurrency trading.

But while the exact causes are uncertain, it seems safe to say the bad news has already been priced in by the market.

The recovery from the low of $2,980 followed by a bout of consolidation (ongoing) in the range of $3,500 to $3,800 over the weekend and move above the resistance of $3,900 (September 5 low) today further indicates there's confidence in the current market state.

So, is bitcoin out of the woods?

Price action analysis says bitcoin could be setting up for a solid rally to record highs, the likes of which it saw from mid-July. However, the bulls still need to clear some key technical resistance levels, before claiming victory over the bears.

The price action witnessed over the last 48 hours is similar to conditions seen in mid-July, i.e. the dip below the 100-day moving average was short lived as the RSI (relative strengh index) was oversold.

At that time, the market saw a huge breakout, followed by a rally to record high of $5,000.

Still, the daily chart shows back-to-back Doji candles (on Saturday & Sunday), a candlestick pattern which shows indecision in the marketplace. A bullish reversal is confirmed if the Doji is followed by a positive candle. If bitcoin ends on a positive note today, preferably above $3,958 (50-day moving average), a bullish reversal would be confirmed.

If bitcoin ends on a positive note today, preferably above $3,958 (50-day moving average), a bullish reversal would be confirmed.

The trend line drawn from September 2 high and September 8 high will offer resistance around $4,250 levels. A break higher would open doors for fresh record highs in bitcoin.

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