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Bitcoin is keeping its head above the bottom of its falling wedge visible on the daily time frame and looks prime for a bounce back to the top. This coincides with an area of interest or former support zone that might now hold as resistance.
Applying the Fibonacci retracement tool shows that the 61.8% level lines up with the potential area of interest around the $6,000-6,200 levels. This might be the line in the sand for a downtrend correction as a break higher could signal that a reversal is underway.
However, the 100 SMA is below the longer-term 200 SMA to confirm that the path of least resistance is to the downside. In other words, the selloff is more likely to resume than to reverse. Then again, the gap between the the moving averages is narrowing to signal weakening bearish momentum.
Stochastic is also indicating oversold conditions to show that sellers are feeling exhausted and might let buyers take over. The oscillator has made an upward crossover to signal this intention but has yet to pull up from the oversold region to show a return in bullish pressure. Similarly RSI has reached the oversold level to indicate that selling pressure is fading and that buyers might regain the upper hand soon.
A break below the swing low around $4,160 could indicate that bearish pressure is still picking up and that a steeper slide is in the works. The wedge pattern spans $4,160 to $11,000 so the resulting drop might be of the same height, essentially taking bitcoin down to zero.
Of course bulls might not let that happen as they have been defending support zones in the past. Investors might be looking to hop in at bargain levels but it would need a strong positive catalyst to sustain a bounce.
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