Looking North? Bitcoin Price Dip Forms Bull Flag Pattern

Bitcoin's (BTC) minor pullback from two-week highs could end up fueling a breakout above the key hurdle of $4,140.

The world's largest cryptocurrency by market value jumped to $4,090 at 17:15 UTC on Sunday – the highest level since Dec. 24 – validating the short-term bullish reversal confirmed on Dec. 20.

Even so, the positive momentum has weakened slightly in the last 36 hours. As of writing, BTC is changing hands at $3,995 on Bitstamp, having clocked a low of $3,934 earlier today.

The 3 percent correction from two-week highs, however, has carved out a bull flag on the technical charts. Put simply, the pattern often represents a pause in a rally and can accelerate the preceding bullish move.

So, it seems safe to say that the price pullback has pushed up the odds of an inverse head-and-shoulders breakout above $4,140.

4-hour chart

BTC has created a bull flag pattern – a bullish continuation setup – on the 4-hour chart.

A 4-hour close above the upper edge of the flag, currently at $4,005, would confirm a bull breakout. That would signal a revival of the rally from the Jan. 6 low of $3,753 and would open the doors to $4,340 (target as per the measured move method).

Essentially, the flag breakout could end up yielding an inverse head-and-shoulders breakout above the neckline of $4,140.

More importantly, higher lows (marked by red arrows) at $3,566 (Dec. 27 low), $3,629 (Jan. 1 low) and $3,753 (Jan. 6 low) indicate that the bulls are in control. Therefore, crossing the flag resistance should not be a tough task.

Daily chart

As seen above, BTC is taking the support of the 5- and 10-day moving averages (MAs), validating the short-term bullish setup indicated by these upward sloping averages.

The 14-day relative strength index is holding in bullish territory above 50.00 and prices seem to have found acceptance above the 50-day MA hurdle.

The path of least resistance, therefore, is to the higher side.

View

• A bull flag breakout, if confirmed, could yield a break above the inverse head-and-shoulders neckline level of $4,140.
• A UTC close above $4,140 would confirm an inverse head-and-shoulders bullish reversal (transition from the bearish-to-bullish market) and open up upside towards the psychological hurdle of $5,000.
• The bears may feel emboldened if BTC violates the bullish-higher low pattern with a move below $3,566 (Dec. 27 low).

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

Bitcoin image via Shutterstock; charts by Trading View