Bitcoin is looking oversold after a drop to 13-month lows Wednesday and could defend immediate support at $5,000 in the next few days.

The world’s top cryptocurrency by market value fell to $5,324 (price via Bitstamp) in a matter of hours yesterday, reaching its lowest level since Oct. 18. The average price across major exchanges, as calculated by CoinDesk’s Bitcoin Price Index fell 10 percent – the biggest single-day drop since March 30.

While BTC had supposedly carved out a long-term bottom around $6,000, the convincing break below that level indicates a resumption of the sell-off from the record high of $20,000 reached last December.

As a result, a deeper drop looks likely, albeit after a minor bout of range-bound trading, as the 14-day relative strength index (RSI) is signaling bearish exhaustion.

Notably, the widely followed technical indicator is currently seen at 18, its lowest since September 2014. As the area below 30.00 represents oversold conditions, the bears may now take a breather before hitting the market with fresh offers.

As of writing, BTC is changing hands at $5,400 on Bitstamp, having clocked a high of $5,641 earlier today.

Daily chart

BTC closed at $5,595 yesterday, confirming a downside break of a nine-month-long descending triangle.

Meanwhile, the 5- and 10-day exponential moving averages (EMAs) have adopted a bearish bias, while the stacking order of the 50-day EMA, below the 100-day EMA, below the 200-day EMA, indicates that the path of least resistance is to the downside.

Monthly chart

Over on the monthly chart, BTC is trading below the support of the trendline connecting the November 2011 and August 2016 lows, validating the bearish view put forward by the bearish crossover between the 5- and 10-month EMAs in September.

The RSI is now threatening to turn bearish below 50.00 for the first time since September 2015.

To sum up, the odds are stacked in favor of a drop below the psychological support of $5,000, although the oversold daily RSI indicates that may not happen immediately.

View

BTC is looking south, although oversold conditions may help it hold above the psychological support of $5,000 in the next few days.

The probability of a stronger corrective rally in the near-term is quite low as a significant majority of investors, who had called a bottom around $6,000, may have turned bearish after yesterday’s price drop.

The bearish pressure would weaken if prices close above the June low of $5,780.

The bearish view would be neutralized if the former-support-turned resistance of $6,000 is scaled.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin in water image via Shutterstock; charts by Trading View