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Bitcoin Price Surges over $500

May 29, 2016 at 17:56 by Wade Powers

According to Zero Hedge, a glut of Chinese buying has caused Bitcoin to rise dramatically over the course of 48 hours and eclipse $500 on all major exchanges. Historically major spikes in price have led to extended buying interest. Traders can likely expect the current uptrend to continue on to major resistance at $550.

The current level of $525 (17:24 GMT) represents a historical support line from previous years, meaning we could see a stall in the price climb in the very short time due to profit taking. Previous year support levels are not indicative of current performance always, but can be a strong clue as to where resistance might form. Traders should be prepared to exit positions quickly should the Asian market buy support begin to fade.

bitstamp buy wall

While many are exiting positions now to take profits, savvy traders can see it as a consolidation more-so than a change to a bear market. A real correction may start to form around the $550 level so look to take your positions off the table at that point. The buy wall at major exchanges like Bitstamp remains resilient in the meantime, giving traders a chance to scoop up day or very short swing positions.

That correction should be expected soon however, with overbought conditions at a recent peak. This is indicated by the large red swaths on the chart below. Current Bitcoin RSI has risen sharply from under 40 to over 70, indicating a weakening in buying power. Historically bitcoin has followed traditional charts by retracing trends 40% to 50%.

bitcoin RSI chart

There is a slight possibility the move upward continues all the way up to the $675 level, although this would be very surprising considering the high RSI level.

Traders who found themselves caught on the wrong end of the short spike above $425 should not panic sell. Bitcoin is on a large scale upward trend since the beginning of 2016, and is much more likely to continue that positive trajectory than it is to lose the ground it has gained this year. Speculators who are holding at the price peak of this upswing should consider averaging down on the next dip.

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