Bitcoin spiked through $11,000 Wednesday morning, hours after surpassing the $10,000 level for the first time. Bitcoin traded at an all-time high of $11,155.20 at around 9:00 a.m. ET, according to industry site CoinDesk. By 9:16 a.m., bitcoin had leaped all the way to $11,377.33, according to CoinDesk.

Much of that incredible gain came just about 12 hours after the cryptocurrency smashed through the $10,000 mark that many analysts had been hyping for months. But few saw it happening this quickly. There are reasons to be cautious, as the move is looking parabolic.

 

 

 

The above chart shows:

  • A high volume price drop to near $10,000 as represented by the big bearish engulfing.
  • Volumes fell as the price recovered to $11,000 from the engulfing candle low.

A bearish engulfing candle is characterized by a bearish candle, whose body – the open and close –swallows up the previous candle’s body. On the chart above, the big red candle has enveloped the body of the previous two 1-hour candles.

Also, as noted above the volume spiked as prices fell back to $10,000, before falling sharply as prices recovered. As such, the move suggests that weak hands are at play, i.e. the latest move higher from $10,000 to above $10,800 lacks substance.

Further, the relative strength index (RSI) shows overbought conditions on the 1-hour chart and 4-hour chart. Meanwhile, the daily RSI is at the highest level since May further hinting that bitcoin is extremely overbought.

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A pullback to $10150  looks likely, and a violation there would expose support at $9,800.

Investors also need to watch out for potential bearish RSI divergence. For example, prices could clock fresh highs above $11,500 before falling back below $10,500 on overbought conditions. In such a case, the 1-hour RSI would form lower highs.

Confirmation of bearish price RSI divergence would validate bearish daily view put forward by price and volume study and could only increase the magnitude of the pullback.

On a larger scheme of things, only a break below $9,000 (rising trend line support on the daily chart) would signal a bullish-to-bearish trend change.

On the higher side, only a high volume jump above $11,000 would be considered a good news, although overbought conditions as showed by the RSI could come into play anytime.

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