The next few weeks could be tough for crypto currency bulls.
Bitcoin has had a good run going over the past several weeks. After bottoming near $19,000 per coin in mid-June, the “King of Cryptos” traded above $25,000 early last week.
That’s a solid 31% rally off the bottom. And that action had the crypto-faithful fans shouting “to the moon” once again…
But Friday’s 11% drop killed the rally.
Bitcoin is still trading well above the mid-June bottom. But Friday’s decline caused a lot of damage to the chart.
Take a look…
The blue squares on the chart illustrate each time the short-term, 9- and 20-day exponential moving averages (EMA – red and green lines) crossed above the 50-day moving average (MA – blue line).
This “bullish cross” often indicates the start of a multi-week rally phase.
You can see how bitcoin popped higher in the weeks and months following the bullish crosses in 2000 and 2021.
But the bullish cross earlier this year failed. After a brief pop higher, bitcoin rolled over and fell below all three of its moving averages lines.
The decline was severe enough that the short-term moving averages dropped back below the 50-day MA – thereby creating a “bearish cross.”
The price of bitcoin fell 50% in two months following the bearish cross in April.
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Up until last Friday, the chart of bitcoin looked quite constructive.
The King of Cryptos was trading above all three of its moving average lines. And the moving averages had completed a bullish cross just last month. That’s typically a good sign that bitcoin is headed higher.
But that changed on Friday.
Now, with bitcoin trading below its various moving averages, the action looks similar to what happened in April.
If bitcoin can rally immediately, regain what it lost on Friday, and pop back above its MAs then there’s no problem. The chart still shows a bullish cross and the odds will favor a rally over the next several weeks.
But if bitcoin stays below its various MAs for more than a few days, then that action will pull the short-term 9- and 20-day EMAs below the 50-day MA – creating another bearish cross.
That would likely lead to much lower prices for bitcoin (and the rest of the cryptocurrencies) over the next several weeks and months.
Best regards and good trading,
Jeff Clark
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