Having rallied more than 80 percent in the last week, bitcoin cash (BCH) looks overbought and due for a pullback.
The world’s fourth largest cryptocurrency by market capitalization confirmed a bull breakout on April 15 by crossing the long-term descending trendline.
The price rise occurred alongside the broader market recovery seen after bitcoin’s $1,000 rally on April 12, but also looks to have been further buoyed by a technical “hard fork” upgrade planned for next month.
As a result, bitcoin cash has outperformed its peers over the last seven days, rising well above the $1,000 mark.
Clearly, the hard fork news seems to have played a big role in boosting BCH prices. The bitcoin cash network is scheduled to change the cryptocurrency’s underlying code, increasing its block size from 8MB to 32MB, on May 15.
However, there is no plan to “airdrop” a new coin to current holders, and the current blockchain will merely be replaced by the updated version (Bitcoin ABC 0.17.0) if it gains sufficient support.
So, while BCH investors will not be making free money out of thin air, prices have still rallied sharply, possibly because investors tend to associate hard forks with “free money.” And once the investors realize the hard fork is only a software upgrade, the rally may well run out of steam.
Backing up that argument, the technical charts show the rally is overdone and a pullback could be on the cards.
As of writing, BCH is changing hands at $1,413 on Bitfinex – up 15 percent in the last 24 hours.
Daily chart
The overall bias remains bullish as suggested by the upside break of the long-term descending trendline on April 15 and the ascending (bullish biased) 5-day and 10-day moving averages (MAs). Daily trading volume has also jumped 374 percent week-on-week, signaling a strong rally.
However, the relative strength index (RSI) stands well above 80.00, signaling short-term overbought conditions.
View
- A pullback to the 100-day MA support of $1,167 cannot be ruled out, although dips will likely be short-lived.
- On the higher side, resistance is lined up at $1,480 (Jan. 23 low), $1,630 (Feb. 18 high), $1,788 (Jan. 28 high) and $1,938.7 (38.2 percent Fibonacci retracement).
- Only a daily close below the 10-day MA ($978) would abort the overall bullish view.
- Support is seen at $1,167 (100-day MA), $1,100 (Nov. 29 low), $1,000 (psychological support), $978 (10-day MA).
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