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Bitcoin is at its most overbought level since December 2017, according to the three-day chart's money flow index.

If prices fail to establish a foothold above resistance at $10,350, a correction to $9,800 may be seen.

The overall trend will remain bullish as long as prices are holding above support below $9,100.

Bitcoin’s recent price rally is looking as overstretched, according to a technical indicator.

The money flow index (MFI), a momentum indicator that incorporates both price and trading volumes, has risen to 86.00 on the three-day chart. That’s the highest level since late 2017 when prices hit a life-time high of $20,000. A reading above 80 indicates overbought conditions.

The overbought conditions do not necessarily imply an imminent bearish reversal but likely represent over-exuberant bitcoin buying because the cryptocurrency has rallied by more than $3,500 over the last six weeks.

Also, markets sometimes enter into very strong trends, in which case the MFI can stay overbought for a prolonged period of time.

That said, the latest above-80 reading on the MFI has gained credence with bitcoin’s failure to keep gains above $10,350 (October high) resistance earlier today.

3-day chart

The long upper wick on the latest three-day candle represents a failure on the part of the bulls to establish a secure foothold above the horizontal resistance of $10,350 – a sign of buyer exhaustion.

That, along with MFI’s overbought signal, indicates scope for a temporary pullback or consolidation.

Prices may fall back to the five-candle moving average (MA), currently at $9,876, if the bulls fail to engineer a convincing break above $10,350 during the U.S. trading hours.

The overall bias will remain bullish as long as prices are holding above the Feb. 4 high of $9,075, as discussed on Tuesday.

Hourly chart

The hourly chart relative strength index has produced lower highs, contradicting higher highs on price. The bearish divergence supports the case for the price pullback put forward by the three-day charts.

Daily chart

Bitcoin created a bullish engulfing candle on Tuesday, signaling a continuation of the uptrend.

Bullish bias would further strengthen if prices find acceptance above $10,383 (engulfing candle’s high), bringing additional gains toward the next big resistance at $10,949 (September high).