Bargain hunters stepped up to buy Bitcoin last week. But, they might still be a bit early.
Granted… it’s better to be a buyer of the King of Cryptocurrencies at $102,000 per coin than it was to buy it at $125,000 five weeks ago. Given the look of the following chart, though, we might see even lower prices in the coming weeks.
Take a look…
Bitcoin peaked at $125,000 in early October. Since then, the chart has formed a series of lower lows and lower highs – which is the definition of a downtrend. The chart shows a similar downtrend from mid-January to early April, when the price of Bitcoin declined about 30%.
Notice, though, that the January-April decline ended as the momentum indicators at the bottom of the chart displayed “positive divergence.” In other words, as the price of Bitcoin declined to a lower low, the momentum indicators made higher lows.
This sort of positive divergence indicates the momentum fueling the decline is waning. It’s often an early warning sign of an impending rally.
The current decline does not show any positive divergence. The momentum indicators have been making lower lows right along with the price of Bitcoin. The downside momentum remains strong. The indicators are confirming the downtrend.
In order to create “positive divergence,” Bitcoin needs to rally enough to pull the momentum indicators off the bottom… then on the next decline, as Bitcoin makes another lower low, the momentum indicators need to hold above last week’s lows.
That sort of action will take at least another two or three weeks to play out. That means Bitcoin will likely break below the support line near $100,000 and head towards the next support near $94,000.
That’s where Bitcoin will present a more favorable risk/reward setup for buyers.
Be patient. The current setup suggests Bitcoin still has further to fall. Traders should wait for the chart to show positive divergence before jumping into the trade.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
P.S. Waiting for divergence on stocks is part of my Breaking Point strategy.
By using this strategy, you can make double- or triple-digit gains… over and over… even while stocks are tanking. Check out how right here.
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