Bitcoin continues to test an area of interest highlighted in a previous article, and a bounce could take it up to the Fibonacci extension levels. In addition, this might also create an inverse head and shoulders pattern, which is often seen as a classic reversal signal.
This pattern would have a neckline around the 50% extension or $6,800 mark. A break past that level could lead to a move to the 61.8% extension at $6,941 or the 78.6% extension at $7,122. Stronger bullish pressure could take it up to the full extension at $7,352.
The 100 SMA is still below the longer-term 200 SMA, though, so the path of least resistance is to the downside. This suggests that the selloff is more likely to resume than to reverse.
Then again, the gap between the moving averages is narrowing to reflect weakening bearish pressure. If a bullish crossover materializes, buyers could get more energy to sustain the reversal from the earlier downtrend. In addition, the 100 SMA apepars to be holding as dynamic support.
RSI has made it to oversold territory, reflecting exhaustion among sellers and a potential return in bullish pressure upon turning higher. Stochastic is also indicating oversold conditions and bitcoin could follow suit if it starts moving north again. The chart pattern is around $1,000 tall so the resulting rally could be of the same height.