When an asset is in an overbought condition and traders are sitting on large profits, even minor negative news and events could trigger profit-booking. This seems to have happened following Janet Yellen’s adverse comments on cryptocurrencies during a virtual hearing with the U.S. Senate Finance Committee.
In the same meeting, Yellen also told Congress to “act big” in order to support the U.S. economy. Another round of stimulus would probably further weaken the U.S. dollar and drive investors into assets that are considered as a store of value. This means Yellen's comments may have inadvertently boosted the sentiment surrounding gold and Bitcoin (BTC).
As the fundamental factors supporting the current bull run are still intact, the institutional investors who had missed out on the rally at lower levels may use the current dip to build positions.
Glassnode data shows that large investors have been aggressively adding Bitcoin to their portfolios and the number of wallets holding over 1,000 Bitcoin has risen to a new all-time high. Since the start of 2021, 164 new wallets with over 1,000 Bitcoin have been created, indicating that whales are bullish despite the current BTC price correction.
Let’s study the charts of the top-10 cryptocurrencies to spot the critical support levels where buyers may start cherry-picking.
BTC/USD
Bitcoin has broken below the symmetrical triangle pattern but the bulls are currently attempting to defend the 20-day exponential moving average ($34,626). In an uptrend, traders buy the dip to the 20-day EMA as it offers a low-risk entry opportunity and a bounce off it reiterates the strength in the trend.
The 20-day EMA is flattening out and the relative strength index (RSI) has gradually dropped from the deeply overbought territory to the midpoint, which suggests a balance between supply and demand.
If the BTC/USD pair sustains below the 20-day EMA, it could drop to the 38.2% Fibonacci retracement level at $29,688.10. The bulls are likely to defend this support aggressively. If they succeed, this level may act as the support of the range while $40,000 could act as the resistance.
The positive view could be negated if the bears sink the price below the 50-day simple moving average ($27,596). Such a move could open the possibility of a fall to the 61.8% Fibonacci retracement level at $22,106.73.
ETH/USD
Ether (ETH) rallied to a new all-time high on Jan. 19, indicating that the bulls are in command. The upsloping moving averages and the RSI near the overbought territory suggest the path of least resistance is to the upside.
Usually, after every breakout from a resistance, the price returns to retest the level. The same has happened in the ETH/USD pair where the bulls are trying to flip $1,300 into support. If they succeed, this level will act as a new floor.
The long tail on today’s candlestick suggests traders are buying on dips below $1,300. If they manage to close the price above $1,300, the pair may attempt to resume the uptrend. If the bulls push the price above $1,438.318, the pair could rally to $1,675.
Contrary to this assumption, if the pair sinks and sustains below $1,300, the next drop is likely to be the 20-day EMA ($1,129). A bounce off this support will suggest the sentiment remains bullish, but if the bears sink the pair below the 20-day EMA a short-term top may be in place.
DOT/USD
After the sharp rally of the past few days, Polkadot (DOT) has entered a minor correction. The altcoin had today dipped to the 38.2% Fibonacci retracement level at $14.7259, which is acting as a strong support.
The long tail on today’s candlestick shows that traders are not waiting for a deeper correction to buy as they anticipate higher levels in the future. If the bulls can push the price above $19.40, the uptrend could resume with the next target objective at $24 and then $30.
Contrary to this assumption, if the bears sink the price below $14.7259, the selling may intensify and the pair could drop to the 50% retracement level at $13.2821 and then to the 20-day EMA ($12.32).
If the pair rebounds off the 20-day EMA, it will suggest the uptrend remains intact but if this support cracks, the decline could extend to $11.8383. The deeper the correction, the longer it is likely to take for the uptrend to resume.
XRP/USD
XRP rose above the 20-day EMA ($0.297) on Jan. 19 but the bulls could not sustain the higher levels, indicating traders are offloading their positions on every minor attempt to rally.
The price action of the past few days has formed a descending triangle pattern. If the bears sink the price below the $0.25 support, the XRP/USD pair could drop to the critical support at $0.169. A break below this level could resume the downtrend with the next target objective at $0.10.
On the other hand, if the bulls defend the $0.25 support and push the price above the downtrend line, the pair may rise to $0.385 and stay range-bound between these two levels for a few more days. A new uptrend could begin on a breakout and close above $0.385.
ADA/USD
Cardano (ADA) has pulled back from the stiff overhead resistance at $0.40, which shows short-term traders may be booking profits. The shallow correction and the long tail on the day’s candlestick show the bulls are attempting to flip the previous resistance at $0.34 into support.
If they succeed, the bulls will make one more attempt to thrust the ADA/USD pair above the $0.40 resistance and resume the uptrend. If they manage to do that, the next stop could be the psychological resistance at $0.50.
The upsloping moving averages suggest the trend remains in favor of the bulls but the negative divergence on the RSI indicates the momentum may be weakening. If the price sustains below $0.34, a drop to the 20-day EMA ($0.30) is likely.
A strong rebound off this support will indicate the uptrend remains intact but a break below it will suggest the possibility of a deeper correction to $0.26.
LTC/USD
The bulls pushed Litecoin (LTC) above the 61.8% Fibonacci retracement level at $157.6904 on Jan. 19 but could not sustain the higher levels due to the bear onslaught, as seen from the long wick on the day’s candlestick.
If the bears can sustain the price below the 20-day EMA ($145), the LTC/USD pair could drop to $130 and then to $120. This is an important support to watch out for because a break below it could signal the bears are back in the game.
The flat 20-day EMA and the RSI close to the midpoint suggests a balance between supply and demand. This could keep the pair range-bound between $130 and $160. On the upside, a breakout and close above $160 may resume the uptrend.
BCH/USD
Bitcoin Cash (BCH) broke above the $539 resistance on Jan. 19, but the long wick on the day’s candlestick suggests the bears had other plans as they sold aggressively, trapping the bulls who may have purchased the breakout.
The BCH/USD pair dipped to the uptrend line but the long tail on today’s candlestick suggests the bulls aggressively defended this support. If the bulls can push the price above $539, a rally to $630 is possible.
On the contrary, if the pair breaks below the uptrend line, it will suggest the bears have overpowered the bulls. This will signal a possible trend change and the pair could then drop to the next critical support at $370.
LINK/USD
Chainlink (LINK) is currently correcting the sharp up-move of the past few days. Aggressive profit-booking by traders had pulled the price below $20.1111, but the long tail on today’s candlestick suggests strong buying at lower levels.
Both upsloping moving averages and the RSI in the positive zone suggest bulls have the upper hand. If the LINK/USD pair rebounds off the current levels, the bulls will try to push the price above $23.767 and resume the uptrend. The next level to watch on the upside is $27 and then $30.
Contrary to this assumption, if the bears sustain the price below $20.1111, the pair may drop to $17.7777, which is just above the 20-day EMA ($17.58). If the pair rebounds off this level and rises above $20.1111, the bulls will try to resume the uptrend.
This positive view will invalidate if the selling breaks the 20-day EMA support. Such a move will indicate the bulls are not buying the dips anymore, signaling a change in sentiment.
XLM/USD
Stellar Lumens (XLM) continues to trade inside the $0.26 to $0.325 range. The bulls tried to push the price above the range on Jan. 19 but failed, which shows the bears are active at higher levels.
The sellers will now try to sink the XLM/USD pair below the support of the range, but they are likely to encounter strong buying from the bulls. The upsloping moving averages and the RSI in the positive zone suggest the bulls are unlikely to give up easily.
A strong rebound off the 20-day EMA ($0.263) could extend the consolidation by a few more days. Contrary to this assumption, if the bears sink the price below the $0.26 support, the selling could intensify and that may pull the pair down to the 50-day SMA ($0.201).
BNB/USD
Binance Coin (BNB) tried to resume the uptrend on Jan. 18 and 19 but the bulls could not sustain the higher levels. Aggressive profit-booking on Jan. 19 started a correction that has reached the 20-day EMA ($40.99).
If the bears can sink and sustain the price below the 20-day EMA, the BNB/USD pair may drop to the support line of the ascending broadening wedge pattern. The bulls will attempt to defend this support and if they succeed, the pair may extend its stay inside the pattern.
Conversely, if the bears sink the price below the support line, it will complete the bearish setup, which has a target objective at $26.7273. But the pair is unlikely to plunge to the target level in a hurry because the bulls could offer strong support at $35.69.
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Market data is provided by HitBTC exchange.