This technical analysis article explores Bitcoin Cash (BCH), its recent price surge, key support areas, potential retracement due to overbought conditions.
Bitcoin Cash (BCH) has recently been making headlines, surging to a 14-month high and doubling in value after being offered by EDX Markets, a crypto exchange backed by prominent asset managers such as Fidelity, Charles Schwab, and Citadel.
Additionally, the fact that BCH was not named a security in the SEC lawsuits against major crypto exchanges Coinbase and Binance further contributed to its price boost.
In this technical analysis, we will examine the charts to determine the potential future movements of the coin.
Daily Chart
Starting with the daily chart, we have two support blocks which signifies two key support areas. In November 2022, BCH retested the $90 area before moving higher. However, a retracement occurred, bringing the price back down to the $90 area again in June 2023.
Daily RSI
The daily Relative Strength Index (RSI) indicates that BCH is currently extremely overbought, suggesting an imminent retracement. Bearish divergences between the price action and the RSI are evident, typically signaling a trend reversal. Therefore, it is likely that the substantial upside move will be followed by a significant pullback.
A healthy pullback would involve a retest of a previous resistance level, and $145 appears to be a potential entry point. A pullback to $145 would represent a 55% decline from the recent high of $330, which is within an acceptable range for a healthy correction. Should the price dip below $145, it may target lower support areas on the chart. While a revisit to $90 cannot be ruled out, it might require a significant market event like a flash crash or a black swan event.
Weekly Chart
Moving to the weekly chart, a massive sideways channel has been observed since June 2022, reminiscent of the current pattern on the Chainlink (LINK) chart. Once the sideways channel is eventually broken, BCH experienced a substantial impulsive move.
Additionally, a trading range between $380 and $280 was established in 2022, with support and resistance levels tested. However, in May 2022, the support was lost, and after a year, BCH is now retesting that range as resistance, which is a typical market behavior that takes time to unfold on the weekly chart.
The 20-day moving average, currently around $141, is a crucial support level to monitor. During a bull market, the 20MA often acts as a support band, requiring a backtest for confirmation. Thus, if Bitcoin Cash is entering an early bull market phase, a retest of the 20MA is necessary.
Weekly RSI
Analyzing the weekly RSI, it is apparent that BCH is highly overbought, similar to levels witnessed in April and May 2021. This indicates the impulsive nature of the current wave, with the RSI reaching the same level as in January 2021.
Final Thoughts
In conclusion, Bitcoin Cash (BCH) has recently experienced significant price surges and favorable market conditions. However, technical analysis suggests that a retracement is likely due to the extreme overbought conditions on the daily and weekly charts. A healthy pullback to around $145 could provide a potential entry point, although further declines to lower support levels cannot be ruled out. Long-term investors should pay attention to the 20MA on the weekly chart, as it will serve as a critical support level during a bullish market phase.