It’s still not quite time to buy Bitcoin.
The last time we looked at the King of Cryptocurrencies it had broken a support level at $94,000 and we figured it was headed to $84,000. At that point, though, it would be oversold enough to justify a bounce. But, it wouldn’t be set up for a sustainable rally.
So, if you played it for a bounce – congratulations. Bitcoin dipped below $84,000 and rallied all the way back up to $94,000. You’re up about 12% in just a few days.
But, it’s time to cash out. Bitcoin has to fall even more before it hits bottom.
Here’s the updated chart…
At the “bottom” in mid-November, the momentum indicators at the bottom of the chart were making new lows right along with the price of Bitcoin. There wasn’t any “positive divergence” like we saw at the previous bottom in early April – when the momentum indicators rallied while the price of Bitcoin fell.
“Positive divergence” is an early warning sign of an impending rally. And, while it’s not always necessary in forming a bottom, the existence of positive divergence does increase our confidence that a bottom is near.
The recent rally in Bitcoin has managed to pull the momentum indicators out of deeply oversold territory. So now, if Bitcoin drops back down to a lower low, there’s an excellent chance the momentum indicators will make higher lows.
That action will create the sort of positive divergence that often goes along with a “bottom” in price.
My guess is the King of Crypto needs to break below the November low and perhaps head towards the next support level near $76,000 before we’ll have the conditions in place for a real “bottom.”
Traders have enjoyed a nice bounce in Bitcoin over the past two weeks. Now, though, as the price bumps up against a previous support level – which is now resistance – we need to be on the lookout for a reversal to the downside.
The next decline could be quite harsh. But, it will likely set the stage for the start of an intermediate-term rally phase.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
P.S. Waiting for divergence on stocks is part of my Crossfire 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.