Bitcoin jumped above $7,400 on Wednesday, confirming a bullish breakout on the short duration technical charts.
Resistance at $7,800 could come into play in the next 48 hours. A violation there would expose $8,200.
The nascent recovery will fall apart if Wednesday’s low of $6.848 is breached. At press time, that looks unlikely.
Bitcoin eked out the biggest single-day gain in four weeks on Wednesday, confirming a short-term price breakout and opening doors for a test of resistance at $7,800.
The number one cryptocurrency printed a UTC close at $7,528 on Bitstamp, representing a 5.15 percent gain on the daily opening price of $7,168. That's the biggest single-day price rise since Oct. 26. On that day, BTC rose by 6.81 percent and printed highs above $10,300.
Wednesday’s gain looks more impressive if we take into account the rejection of lower prices seen during the European trading hours. Prices had dropped to $6,850, but were quickly reversed and the cryptocurrency ended the day on an optimistic note, validating the seller exhaustion signaled by key technical indicators.
More importantly, BTC activated twin bullish cues on the intraday charts with a convincing move above $7,400 and could continue to draw bids in the short-term.
At press time, BTC is changing hands at $7,480, having hit a high of $7,670 during the U.S. trading hours on Wednesday.
Both an upside break of the descending trendline and inverse head-and-shoulders breakout indicate the path of least resistance is to the higher side.
The latter represents a transition from the lower-highs, lower-lows set up to one of higher lows and higher highs. It's considered a potent bullish reversal pattern if it appears following a significant price drop, which is the case here.
The bullish reversal pattern has created room for a rally to $8,200 (target as per the measured move method).
On the way higher, the pair may face resistance at $7,800 (horizontal line) and the descending 100-candle average, currently at $7,936.
The 50-hour average is beginning to trend north – a sign of strengthening upside momentum – and looks set to cross above the 200-hour average in coming days. The impending bull cross may invite stronger buying pressure, possibly yielding a rally to $7,800.
That said, a short-term bullish reversal would only be confirmed if the current three-day candle closes (Friday, UTC) above $7,380.
On the downside, Wednesday’s low of $6,848 is key support, which if breached with strong volumes, would kill the nascent recovery and shift risk in favor of a re-test of $6,500.
Disclosure: The author holds no cryptocurrency assets at the time of writing.