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Bitcoin is setting up for another speculative trade.
We’ve traded the King of Cryptocurrencies a couple of times so far this year. We were buyers of Bitcoin last November. That trade was profitable, with Bitcoin bouncing 12% in just a few days.
We took another bullish trade in early February, as the King of Cryptos tested support near $75,000. This trade took a bit longer to play out though, as it started in the wrong direction. Bitcoin sliced through support and trading as low as $62,000 before reversing.
If you held onto the trade, though, as we suggested, Bitcoin rallied back towards $82,000 and patient traders had a chance to book a profit.
Recently, the King of Cryptos has been falling again. It closed near $61,000 on Wednesday. Investor sentiment is bearish. And, many of the financial television talking heads are suggesting sharply lower prices for bitcoin in the months ahead.
I disagree. It looks to me like bitcoin is setting up for another bullish move.
Take a look at this chart…
Bitcoin is currently testing support near the $61,000 level. This is the second test of that resistance in about a month. The first attempt, in early-June, was successful. Bitcoin bounced and ran back up towards $66,000.
For the past two weeks, though, Bitcoin has been falling again. It is testing support. And, with this being the second attempt, the odds of a breakdown are higher. A sustained move below $61,000 could lead to an immediate flush lower to $57,000.
I will be buying bitcoin on that move.
Notice how, over the past two weeks, as bitcoin has been falling, the momentum indicators at the bottom of the chart have been rising. This sort of “positive divergence” is a sign the selling momentum is fading. It’s often an early warning sign of an impending rally.
It’s also worth noting that if bitcoin falls to $57,000 it will be trading about 20% below its 50-day moving average line. That’s an extended, oversold condition. Bitcoin rarely trades more than 15% away from its 50-day MA before reversing course and heading back towards the line.
To be clear…
I’m not buying bitcoin yet. The chart still shows some short-term downside potential.
But, if bitcoin falls a bit more and gets closer to the $57,000 level – while the momentum indicators hold above the early-June lows – we’ll have the sort of setup that often marks a bottom for the King of Cryptocurrencies.
That’s where I’ll be buying it.
Best regards and good trading,
Jeff Clark
Editor, Market Minute