February 1, 2022

Bitcoin’s loss of long-term momentum is flashing a ‘sell’ signal and suggests the coin could test $27,000 as support, Fairlead’s Katie Stockton says

[Markets Insider]

  • Bitcoin’s ongoing bear market has led to a loss of long-term momentum, according to Katie Stockton of Fairlead Strategies.
  • “A neutral long-term bias now seems appropriate noting a MACD ‘sell’ signal has developed on the monthly chart,” Stockton said.
  • If support around $37,400 fails, Stockton has her eyes on $27,200 as the next level of support.

Bitcoin has lost long-term positive momentum amid an ongoing bear market and it could signal months of range-bound trading that tests news levels of support, according to Katie Stockton of Fairlead Strategies.

The cryptocurrency is down about 44% from its November record high of $69,000, trading around $38,900 midday on Tuesday. According to Stockton, bitcoin’s short-term and long-term momentum reading is in neutral territory, while its intermediate-term momentum reading remains in bearish territory.

In a Monday note, Stockton highlighted that while bitcoin narrowly avoided a confirmed breakdown below the all-important $37,400 support level, it still experienced a breakdown in long-term momentum as the moving average convergence/divergence (MACD) “sell” signal flashed on the monthly chart, reversing the July 2020 “buy” signal.

The MACD indicator tracks moving averages, but is separate from the popular golden cross and death cross between the 50-day and 200-day moving averages. Instead, the trend following momentum indicator tracks the relationship between two moving averages of a security’s price.

“A neutral long-term bias now seems appropriate noting a MACD ‘sell’ signal has developed on the monthly chart,” Stockton said, adding that “the loss of long-term momentum has implications for six to twelve months, suggesting bitcoin may remain range-bound.”

The real downside for bitcoin comes if it fails to decisively hold $37,400 as support. The support level isn’t officially broken until the cryptocurrency logs two consecutive weekly closes below the level, according to Stockton.

While bitcoin dipped to a low of $33,000 last week, it narrowly avoided a confirmed breakdown as it recovered and jumped back above $37,400. But if bitcoin does retest and fail to hold its support level, there would likely be more downside ahead.

“Below $37,400, next support for bitcoin is near $27,200, with an interim level near $30,000,” Stockton said. That represents potential downside of as much as 30% from current levels.

Meanwhile, bitcoin faces an important resistance level near its falling 50-day moving average of about $44,000, according to Stockton, representing potential upside of about 13% from current levels. Stockton is closely monitoring the weekly stochastics of bitcoin, which is a momentum indicator, to gauge if bitcoin is ready to bounce.

“Once the weekly stochastics turn up above 20%, it would suggest an intermediate-term low (rather than just a short-term low) is being established,” Stockton said. 

By Matthew Fox

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