- 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 largely traded in a very narrow range of $9,600 to $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, had dropped to the lowest level in over four months last week. Bollinger bands are volatility indicators placed 2 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.
Put simply, the sellers have come out victorious in the 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 had narrowed to $656 on Sept. 21, the lowest since May. That squeeze has ended with a price breakdown.
Therefore, the path of least resistance is to the downside and the cryptocurrency could challenge the 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 the three-month contracting triangle.
Supporting the bearish case is the below-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 bullish hammer created 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 Sept. 19’s low of $9,600 earlier today.
If the support at $9,600 continues to hold ground in the U.S. trading hours, the cryptocurrency may rise back to $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.