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Bitcoin has violated the support of the trendline connecting the April and May lows, having charted a bearish lower high at $11,100 over the weekend.

A bearish volume divergence indicates prices could fall back to the July 17 low of $9,049.

Daily chart indicators are also indicating the path of least resistance is to the downside.

A UTC close above $11,100 is needed to invalidate lower highs setup on the daily chart.

Bitcoin (BTC) fell below key support above $10,000 earlier today and could suffer a deeper drop, according to price and volume analysis.

The top cryptocurrency by market value violated a trendline representing the recent four-month bull run with a move below $11,017 at 06:30 UTC and went on to a hit a low of $9,897 on Bitstamp.

With the pullback from Saturday’s high of $11,140 to sub-$10,000 levels, BTC has established yet another bearish lower high – the most basic of all bearish technical patterns – on the daily chart.

As a result, the bears are expected to dominate proceedings in the short term. In fact, BTC could fall all the way back to the July 17 low of $9,097, erasing the low-volume bounce from that level to $11,120 seen in four days to July 20.

Popular cryptocurrency trader and mentor Chonis Trading took note of the bearish volume divergence on a 12-hour chart on July 21. A bearish volume divergence occurs when trading volumes drop, creating lower highs as opposed to higher lows (an uptick) on the price chart.

A low-volume lift could be referred to as a “dead cat bounce” – a temporary recovery caused by the unwinding of shorts (profit taking).

And the bitcoin market seems to have experienced a dead cat bounce over the last few days.

A sudden unwinding of shorts on July 19, as reported by bot-powered twitter handle @WhaleCalls, pushed prices back above $10,000. The cryptocurrency remained bid over the next two days, only to face rejection above $11,000 over the weekend amid weak trading volumes and fell back below $10,000 earlier today.

While volume analysis favors a drop to recent lows, technical indicators are also painting a short-term bearish picture.

As of writing, BTC is changing hands at $9,970 on Bitstamp, representing a 3.5 percent drop on the day.

Daily and 4-hour charts

The Chaikin money flow index (above left), which incorporates both prices and trading volumes, has dropped below zero for the first time since the end of April. It means BTC is facing sell pressure for the first time in nearly three months.

The 14-day relative strength index is reporting bearish conditions with a below-50 reading. Notably, the indicator failed to rise above 50.00 over the weekend, reinforcing the short-term bearish view.

So, the stage looks set for a drop to recent lows near $9,049. Note that a UTC close below the rising trendline connecting April 1 and May 29 lows would mean an end of the rally from lows near $4,000.

The outlook would turn bullish if prices invalidate the bearish lower-highs pattern on the daily chart with a UTC close above $11,120. That level could come into play if BTC sees a high-volume falling channel breakout on the 4-hour chart (above right).

A stronger confirmation of bull revival would be a weekly close (Sunday, UTC) above $12,000, as discussed earlier this month.

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

Bitcoin via Shutterstock; charts by Trading View