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What Does Bitcoin's Rally Failure Mean?

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PARIS, FRANCE – MAY 16: In this photo illustration, a visual representation of the Bitcoin Digital Cryptocurrency is displayed on May 16, 2018 in Paris, France.  (Photo by Chesnot/Getty Images)

From the early May high of $9593, the NYSE Bitcoin Index (NYXBT) has dropped 21.8% to $7497 as of the close on May 30th.  In my March post “A Technical Lesson In Bitcoin”, I urged anyone who was thinking about buying Bitcoin to look at the technical evidence before they bought.

At the time, I pointed out that the 38.2% Fibonacci support at $11,382 and the 50% support at $9347 had been violated by early February. This turned the focus on the 61.8% Fibonacci support at $7326.  A violation of this support would be a sign that the bitcoin rally was over (see Fibonacci Investing Basics)

Tom Aspray – ViperReport.com

Just a couple of days after “A Technical Lesson in Bitcoin” was published, this key support level was violated. By early April, NYXBT had reached a low of $6589. This turned the focus on the long-term support at $4833 (line b). It was also clear at the time that “The MACD analysis is still clearly negative, with both the MACD and signal line declining sharply. This is a sign that it will take some time before they can turn positive again.”

The rally from the low at 6589 took NYXBT to a high of $9593, which was a rally of over 45%. These gains quickly evaporated, as in the past three weeks, Bitcoin has given up over $2000 of its gains. The weekly chart now shows a weekly downtrend (line a) which turns the focus back on the early April low of $6589. The long-term chart shows next major support at $4833. The weekly MACD analysis is still clearly negative with no signs of turning around.

Tom Aspray – ViperReport.com

The daily chart shows the steady decline from the early May high as the downtrend (line a) is now at $10,520. Using the low at $6589, one can calculate the key Fibonacci resistance levels. The 38.2% resistance is now at $11,153, which needs to be overcome to signal a rally to the 50% resistance at $12,611.

Like the weekly chart, the daily chart of NYXBT shows a clear downtrend, lower highs and lower lows. The lower support (line b) is now in the $6000 -area. There is monthly pivot support now at $5649.  The daily MACD analysis turned negative on May 11, but does not currently show any increase in downside momentum.

So what should bitcoin investors or traders do?  On May 22, the 50-day moving average crossed below the 200-day moving average. The 200-day MA (at $8522) is still rising, which is mildly positive, but the 50-day (at $8218) is declining.

It will not take much of a rally to turn the daily MACD analysis positive, but it will likely take 3-4 weeks of positive price action to turn the weekly MACD positive. A daily close back above the 50-day MA would be the first sign that prices were stabilizing. If this is followed by a move above the high at 9593 then it will raise the odds that the worst of the selling is over.


For those interested in more closely following Bitcoin prices, you can create a chart of NYXBT similar to the above on www.stockcharts.com entering the symbol NYXBT to the right of the SharpChart  prompt.

My opinion of bitcoin as an investment has not changed especially since March. The burgeoning cryptocurrency industry needs higher prices to grow, and there is a base of investors who view cryptocurrency not just as an investment, but as a political project that they want to succeed. Both of these factors help explain the overabundance of bullish articles despite any clear technical evidence.

Anyone considering a bitcoin investment or trade should realize that it is a highly fluctuating and unregulated market.  It is only suitable for capital you can afford to lose.

I apply the same type of disciplined technical analysis on ETFs and stocks in my Viper ETF and Viper Hot Stocks Reports. Each in-depth report is only $34.95 per month and can be canceled online at any time.

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