Bitcoin fell to $9,600 earlier today, marking a downside break of recent low-volatility consolidation represented by the narrowing of Bollinger bands.
The Bollinger band breakdown has opened the doors for a slide to $9,320 (August low).
A break above $10,380 (Sept. 19 high) is needed to neutralize the bearish setup.
Bitcoin’s recent low-volatility price squeeze has ended with a downside break that may see the cryptocurrency drop to the August low of $9,320 in the short-term.
The top cryptocurrency had been largely trading in a very narrow range ($9,600–$10,500) in the 11 days to Sept. 21.
As a result, BTC’s price volatility, as represented by the spread between the Bollinger bands, dropped to the lowest level in over four months last week. Bollinger bands are volatility indicators placed two standard deviations above and below the price’s 20-day moving average.
A low-volatility period often paves the way for a big move on either side. In BTC’s case, the big move has happened to the downside. Bitcoin fell by 3.38 percent on Monday – the biggest single-day loss since Aug. 29 as per Bitstamp data – and closed (UTC) well below the lower Bollinger band, confirming a downside break of the low-volatility consolidation.
Prices hit a low of $9,600 earlier today and continue to trade below the lower Bollinger band, currently at $9,767.
So, the sellers have come out victorious in a close tug of war with the bulls and a deeper drop could be in the offing. As of writing, BTC is changing hands at $9,730 on Bitstamp.
The spread between the Bollinger bands narrowed to $656 on Sept. 21, the lowest since May – a squeeze that’s now ended with a price breakdown.
The path of least resistance is therefore to the downside and BTC could challenge support at $9,320 (Aug. 29 low) in the next couple of days. On the way lower, the cryptocurrency may find support at $9,388 – the lower edge of a three-month contracting triangle.
Supporting the bearish case is the sub-50 reading on the 14-day relative strength index. Further, the MACD histogram is charting deeper bars below the zero line – a sign of strengthening bearish momentum.
A UTC close below $9,388 would confirm a contracting triangle breakdown and may yield a deeper sell-off below $9,000.
The bearish outlook would be invalidated if prices rise above $10,380 – the high of a bullish hammer that formed on Sept. 19.
That said, a break above the upper edge of the contracting triangle, currently at $10,692, is needed to revive the bullish outlook. A triangle breakout, if confirmed, would imply a resumption of the rally from April’s low near $4,000 and open the doors for a sustained break above key resistance at $12,000.
BTC defended support of the Sept. 19 low of $9,600 earlier today.
If the support level continues to hold ground in the U.S. trading hours, the cryptocurrency may rise back toward $9,900, as the RSI is hovering very close to the oversold territory (below 30).
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; charts by Trading View