View

Bitcoin’s drop from $7,870 to $7,087 (Wednesday's low) may turn out to be a bear trap due to falling selling volumes and bear exhaustion indicated on the daily chart.

A re-test of $7,870 could be in the offing – more so, as the three-day chart is still reporting a bull reversal pattern.

A UTC close above $7,870 is needed to invalidate lower-highs setup and bolster the short-term bullish case.

On the downside, $6,847 (as per Bitstamp prices) is the level to beat for the sellers.

Bitcoin has recovered from one-week lows hit earlier on Wednesday

and may revisit recent highs in the short-term.

The leading cryptocurrency by market value fell to $7,087 at 08:10 UTC – the lowest level since Nov. 27, according to Bitstamp data. At press time, bitcoin has recovered to $7,220, representing an 8 percent drop from the recent high of $7,870 reached on Nov. 29.

Further, the cryptocurrency has erased nearly 50 percent of

the recovery rally from the Nov. 25 low of $6,515 to $7,870.

Essentially, bitcoin has established a lower high at $7,870,

signaling a continuation of the sell-off from October highs above $10,300.

Even so, sellers need to observe caution, as the latest pullback lacks volume support and may prove a bear trap, as seen in the chart below.

4-hour chart

Bitcoin dived below an ascending trendline on Dec. 1, signaling an end to the corrective bounce

However, the selling volume (red bars) witnessed throughout

the price drop from $7,870 to $7,087 has been significantly lower than the

buying volume (green bars) seen during bounce from $6,515 to $7,870.

Traders often attribute a low-volume pullback with weak long positions taking profits, rather than bears initiating fresh shorts.

Such dips, therefore, are usually short-lived.

Daily chart

Bitcoin is currently reporting its fifth red daily candle in a row. However, three out of the five carry long tails, representing a rejection of lower prices or bearish exhaustion

The chart also shows a steady decline in selling volumes since Nov. 30.

Hence, bitcoin may soon pick up a bid and challenge $7,550 – the resistance of the trendline connecting the Oct. 26 and Nov. 15 highs – and possibly extend gains to $7,870.

A UTC close above the latter level would invalidate the lower-highs set up and confirm a bullish reversal on the daily chart.