Bitcoin Price Looks North As Trading Volumes Hit 9-Month Highs

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• Bitcoin witnessed an inverse head-and-shoulders breakout on Monday and rose to $4,000 yesterday, confirming a bullish reversal on the daily chart.
• The trend change is backed by a jump in trading volumes to levels last seen in May 2018. The rally, therefore, looks to have legs and December highs above $4,200 could come into play, albeit after a minor bout of consolidation or pullback, as the indicators on the 4-hour chart and daily charts are reporting overbought conditions.
• A break below Monday's low of $3,614 would invalidate the bullish setup, although that looks unlikely, as longer duration charts are beginning to align in favor of the bulls.

BTC$106,902.34 could revisit December highs above $4,200 in the near-term as the recent rally is backed by a surge in trading volumes.

The leading cryptocurrency by market value is currently trading at $3,930 on Bitstamp, having clocked a 5.5-week high of $4,000 yesterday.

The 20 percent appreciation witnessed over the last 12 days is accompanied by a 28.4 percent rise in daily trading volumes, according to CoinMarketCap.

Notably, total trading volumes across all exchanges jumped 40 percent to $9.91 billion on Monday, validating BTC's bullish breakout above $3,800. Further, investor interest in the cryptocurrency has increased post-breakout, with volumes rising further to $9.93 billion yesterday – the highest level since May 3, 2018.

So, the recent rally appears to have substance and prices could rise towards $4,236 (Dec. 24 high) in the near-term.

Daily chart

Both the inverse head-and-shoulders breakout and the triangle breakout seen in the above chart indicate a bearish-to-bullish trend change.

The 5- and 10-day moving averages (MAs) are trending north, indicating a short-term bullish setup. The 50-day MA has bottomed out (shed bearish bias) and the 100-day MA hurdle has been scaled.

While the path of least resistance is to the higher side, a rise toward the Dec. 24 high of $4,236 may not happen immediately. The 14-day relative strength index (RSI) has moved into overbought territory above 70.00, while the long upper shadow attached to the previous day’s candle is sending a similar message.

4-hour chart

On the 4-hour chart, the RSI is reporting overbought conditions and has diverged in favor of the bears (does not mirror the higher price highs) However, the stacking order of the 50-candle MA, above the 100-candle MA, above the 200-candle MA is a classic bullish indicator.

So, pullbacks, if any, could be short-lived – especially as the longer duration charts are looking increasingly bullish.

3-day chart

BTC's current 3-day candle looks set to close well above $3,711. That would add credence to the bullish outside reversal candle created in three-days to Feb. 8 and bring potential for a move towards $4,429 (38.2 percent Fibonacci retracement of the sell-off from November highs to December lows).

Supporting that scenario are a bullish crossover between the 5- and 10-day MAs, confirmed earlier this month, and an RSI of 51.00.

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

Bitcoin image via Shutterstock; charts by Trading View