Bitcoin finally broke out of its downtrend as it surged above the descending trend line to signal that a reversal is due. However, price is turning at the $3,800 resistance so a correction to the broken trend line might take place first.
Applying the Fibonacci retracement tool shows where buyers might be waiting. The 61.8% level is closest to the trend line and is also in line with the 100 SMA dynamic inflection point. The 50% level is closer to the 200 SMA and might also serve as near-term support around the $3,600 mark. If any of the Fibs are able to keep losses in check, bitcoin could resume the climb to the swing high and beyond.
However, the 100 SMA is still below the longer-term 200 SMA to indicate that the path of least resistance is to the downside. In other words, there’s still a chance for the selloff to resume. The gap between the moving averages is narrowing, though, so bearish momentum is fading.
Analysts are renewing their bullish forecasts for bitcoin now that price seems to be done with its slide. One predicted that it could hit $5,000 in ten days, likely drawing more bulls to join in for fear of missing a big move. Even Tom Lee of Fundstrat acknowledged that technical analysts are less bearish on bitcoin these days.
Still, market sentiment would likely play a key role in determining whether or not the rally holds water. The low liquidity conditions early in the week and late last week also played a role in spurring volatility, but it remains to be seen if this market state could last.
In the general financial markets, there is still a lot of uncertainty in play, particularly when it comes to Brexit and trade talks. There have been instances when these have proved bullish for alternative assets like bitcoin and its peers.