As bullish as the setup in bitcoin looked two months ago is as bearish as it looks today.
Bitcoin has enjoyed a solid rally. The King of Cryptocurrencies is up 40% in the past 10 weeks. But, the conditions that set the stage for that rally have flipped to bearish. And, unless those conditions reverse again in the next few days, the next big move for Bitcoin will likely be lower.
Let me explain…
We turned bullish on bitcoin in mid-April. The momentum indicators on its chart were showing positive divergence and the various moving averages (MA) were in a positive formation – with the 9-day EMA above the 20-day EMA, and the 20-day EMA above the 50-day MA.
That setup supported a rally.
Now though, that setup has changed. Take a look…
After peaking above $112,000 in mid-May, bitcoin has been making a series of lower highs and lower lows. This is the definition of a downtrend.
During this downtrend, the momentum indicators at the bottom of the chart have been falling right along with bitcoin. This action confirms the downtrend. It increases the chances this trend will continue.
Also, look at the moving average configuration in the red circles on the chart. In April, the moving averages flipped to a bullish formation. That was a bullish sign.
Last week, however, the moving averages flipped bearish – with the 9-day EMA below the 20-day EMA, and the 20-day EMA below the 50-day MA.
This suggests bitcoin’s 10 week-long rally is over.
It’s now entering a decline phase.
The last decline phase for bitcoin started in February. The King of Cryptocurrencies fell 20% over the next six weeks.
Of course, that doesn’t guarantee we’re in for the same sort of action this time around. If bitcoin can somehow manage to rally enough in the next few days to pull the various moving averages back into a bullish formation – similar to what it did in January – it could stave off a decline for a few more weeks.
At the moment, though, the setup looks precarious. Traders who are looking to put money into bitcoin will likely have a better opportunity to do so several weeks from now.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
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