Inverted Head and Shoulders Complete:

During 9/3 and 9/4 session, litecoin was building an inverted head and shoulders pattern, which indicated that price was looking for a bottom. During the 9/4 session, price did indeed complete this inverted head and shoulders, which we will call a “kilroy” pattern from now on. The rally was sharp, though it lacked volume relative to the dip on 8/31. Nonetheless, price broke above the 200-, 100-, and 50-hour simple moving averages (SMAs), and pushed the 1H RSI above 70. That revives a bullish bias, and introduces bullish momentum in this time-frame.

Litecoin 1H chart 9/5

(click to enlarge)

Pullback after Breakout:

As we get started in the 9/5 session, price has retreated from 5.30. It is now testing the 200-hour SMA just above 5.00. The bullish outlook would still be in play if price did break below the 200-hour SMA. However, a break below 4.85 would probably put away the bullish outlook because it would clear below the 100- and 50-hour SMAs too, not to mention it would break back below a rising trendline and the neckline. This scenario would expose the 4.60 low, and revive the bearish outlook.

Bullish Scenario:

Now, if price does hold above the aforementioned support factors, and the kilroy pattern is confirmed to be a price bottom, the next phase for the bullish outlook would be to attack the 5.90-6.19 resistance are. A break above 6.20 then might introduce the bullish outlook for the medium-term.

Bearish Continuation Scenario:

On the other hand, if price falls below 4.80 and then breaks below 4.60 the 3.33 low from August will be in sight, with downside risk toward 2.21. In this scenario, look for the 1H RSI to dip below 40, which would show loss of bullish momentum established during the breakout from the kilroy pattern. It should also be noted that the bearish outlook would be in-line with the general trend in 2014 so far.

Litecoin 4H Chart 9/5

(click to enlarge)