Bitcoin Faces Deeper Price Pullback Before Rally Continuation

View Bitcoin fell more than 1 percent yesterday, confirming a bearish divergence of the 14-day relative strength index, an early sign of bearish reversal.

With the recent rally to five-month highs above $5,600, the 50-day moving average crossed the 200-day MA from below in what's termed a "Golden crossover" - a confirmation of long-term bull market.

Short-term technical indicators, especially a bearish divergence on the relative strength index, are suggesting a drop in prices before the rally picks up pace again.

The bearish RSI pattern is widely considered an early sign of trend change and has yielded notable price pullbacks in the past.

Bitcoin first jumped above $5,000 on April 1 and further climbed to highs above $5,400, lifting the 14-day RSI to 88.00 - the highest level since December 2017.

With the indicator signaling extreme overbought conditions, bitcoin's price retreated to $4,912 on April 12 before jumping to a five-month high of $5,627 earlier this week.

Essentially, BTC created a bullish higher low at $4,912 and a higher high of $5,627.

As bitcoin set the new higher high, the RSI instead formed a bearish divergence - a pattern confirmed with the near 2 percent price drop seen in the last 24 hours.

Another bearish divergence of the RSI on June 12, 2017, was also followed by a quick 20 percent price slide that ended at lows near $2,120 a few days later.

A strong defense of that average would revive the short-term bullish outlook and could yield a rally to fresh multi-month high above the recent high of $5,627.