View

Bitcoin fell sharply on Tuesday, confirming a bearish reversal and opening the doors for a test of crucial price support near $7,500.

The leading cryptocurrency by market value ran into selling pressure around $9,700 in the early U.S. trading hours and fell to a 3.5-month low of $7,998 at 19:45 UTC on Bitstamp.

BTC had been on slippery ground following Tuesdays volatility band breakdown. A widely-followed indicator was also reporting the strongest a bear bias in nine months, as discussed earlier this week.

The price slide was likely exacerbated by along squeeze, when investors square off (or sell) long positions to cut losses in a falling market, thereby creating further downward pressure on prices.

So, while a price drop was expected, the magnitude of the sell-off has caught many by surprise. The cryptocurrency fell by 11.83 percent on Tuesday 2019s third-biggest single-day drop, as per Bitstamp data.

The latest double-digit price slide has taken the cryptocurrency below major support levels. Therefore, a deeper drop toward $7,500 a level seen a week ahead of Facebooks launch of Libra could be seen over the next few days.

As of writing, BTC is changing hands around $8,400 on Bitstamp. Its worth noting the cryptocurrency is still up about 127 percent on a year-to-date basis.

Bitcoin dived out a three-month contracting triangle on Tuesday (above left), confirming an end of the bull market, which had started from Aprils low near $4,000.

Currently, prices are flirting with the 200-day moving average (MA) support at $8,309. That long-term MA has come into play for the first time since April and will likely be breached, as the post-triangle breakdown price drop looks to have legs volumes hit three-month highs on Tuesday.

BTC, therefore, risks extending losses to support at $7,500 lows seen before Libra hype gripped the market in mid-June

Moreover, the triangle breakdown could yield a drop to $4,000 (target as per the measured move method), as tweeted by bitcoin skeptic and CEO of Euro Pacific Capital Peter Schiff.That target looks far-fetched, however.

The monthly chart (above right) is also now teasing a bearish reversal. The cryptocurrency charted inside-bar candlestick patterns in the previous two months, signaling an impending bullish-to-bearish trend change.

The outlook as per the monthly chart would turn bearish only if prices close below $9,049 (first inside bars low) on Sept. 30. That looks likely, with prices currently trading at $8,400 and the daily chart reporting a strong bearish setup.

The bearish case would weaken if prices find acceptance above $9,097 a higher high created on May 30.The outlook would turn bullish if prices bounce from the 200-day MA and chart a quick V-shaped recovery to levels above Tuesdays high of $9,782. That, however, looks unlikely.

BTC has found acceptance below the 55-candle exponential moving average, which served as a strong base during the 2016-2017 bull market.

Back then, the cryptocurrency charted bullish higher lows along the key EMA and not once did the sellers managed to secure a close below the crucial support.

Hence, the latest close below the 55-candle EMA could be considered a strong bearish development.

The 14-day relative strength index (RSI) is currently hovering below 23, its lowest level since November 2018. A reading below 30 indicates oversold conditions and suggests scope for a corrective bounce.

That said, indicators can and do remain oversold for a prolonged period in a strong bearish market, especially when a sell-off is preceded by a major bout of consolidation. BTC was trapped in a narrow range for almost three months before breaking lower.

In such situations, seasoned trades consider an oversold reading on the RSI as an indicator of trend strength. So, expecting a notable price bounce on the basis of the oversold reading on the RSI could prove costly.

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

Bitcoin image via Shutterstock;charts byTrading View

Originally posted here:

Bitcoin Price Risks Drop to $7.5K After Third Biggest Daily Loss of 2019 - CoinDesk