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Bitcoin is struggling to produce a stronger price bounce, despite the defense of the 4-hour chart’s 200-candle moving average – a sign of buyer exhaustion.

A bear flag breakdown on the 4-hour chart, if confirmed, would open the doors to levels below $7,000. The daily chart continues to call a move lower to the 50-day price average, currently at $6,861.

A minor rally to the $8,200–$8,300 range could be seen if the 4-hour 200-candle average at $7,568 again restricts downside.

A UTC close above the downward sloping (bearish) 10-day MA at $8,284 would invalidate the short-term bearish setup.

A key technical line applied the brakes to bitcoin’s (BTC) price sell-off earlier this week, but so far the bounce has been shallow, with upside capped around $7,900.

The leading cryptocurrency by market value began the week on a negative note with prices dropping 7 percent on Monday. The sell-off was extended Tuesday with prices hitting a 2.5-week low of $7,432.

The drop below the widely followed 4-hour chart’s 200-candle moving average (MA), then located at $7,970, was short-lived, with prices recovering to $7,900 by the early European trading hours on Wednesday.

The bounce, however, has stalled near $7,900 over the last 24 hours. The cryptocurrency’s inability to produce a stronger corrective rally despite the defense of crucial support validates buyer exhaustion signaled by last week’s doji candle.

Further, the price recovery seems to have taken the shape of a bearish continuation pattern on short duration technical charts. So, prices may end up falling back to the 200 candle MA support, currently at $7,568.

At time of writing, BTC is changing hands at $7,810, representing a 0.20 percent gain on a 24-hour basis.

4-hour chart

BTC has created a bear flag on the 4-hour chart. Acceptance below the lower edge of that pattern, currently at $7,700, would confirm a flag breakdown – a continuation pattern that usually accelerates the preceding bearish move.

This type of breakdown is usually followed by a move downwards of roughly the length of the flag’s “pole” (the height of the preceding bear move) – in this case from $8,834 to $7,432, a drop of over $1,000.

So, a flag breakdown below $7,700, if confirmed, would theoretically create room for a drop toward $6,800.

The probability of BTC breaking the flag to the lower side is high, as the 50-candle MA is now trending south, indicating a bearish setup, and looks set to cross below the 100-candle MA (bearish crossover).

Daily chart

The daily chart is biased bearish, with the 5- and 10-day MAs sloping downwards, the relative strength index (RSI) reporting a bearish divergence and a violation of the ascending trendline representing the rally from December lows.

What’s more, prices closed below the crucial 30-day MA on Tuesday, confirming a bearish reversal and have struggled to post big gains above the former support-turned-resistance ever since.

So risks are skewed to the downside with scope for a drop to the 50-day MA support, currently at $6,861, in the short-term.

The drop to toward the 50-day MA, however, could be preceded by a rally to the $8,200–$8,300 range – that’s if the 4-hour chart 200-candle MA at $7,568 again holds ground and fuels a price bounce above $8,000.

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

Bitcoin image via CoinDesk Archives; charts by Trading View