Fairlead's Stockton Plans to Add Bitcoin Exposure Only After Key Indicator Turns Higher

Bitcoin has climbed 30% from its recent low. While the recovery looks impressive, one analyst, who predicted the recent price crash, intends to stay on the sidelines because technical charts have yet to show credible evidence of a reversal higher.

"Once the weekly stochastics turn up, we would add exposure to bitcoin because it remains supported by positive long-term momentum despite its correction," Katie Stockton, founder, and managing partner of Fairlead Strategies, said in a weekly research note published on Monday.

Bitcoin's weekly stochastic chart is trending south and displaying a value of less than 20, meaning the market is over-extended to the downside. A turn higher would confirm the bottom and open the doors for resumption of the broader bull run.

The stochastic oscillator compares the closing price of an asset with the range of its prices over a certain period to generate oversold and overbought signals that traders use as triggers for long and short trade entries. A reading below 20 implies oversold conditions, while an above-80 print indicates an overbought market.

The oscillator is one of the critical components of Dr. Alexander Elder's triple-screen trading system published by Futures magazine in 1986.

While the stochastic indicator is flashing an oversold signal for the first time since 2019, the MACD histogram continues to print deeper bars below the zero line in a sign of strengthening bearish momentum.

Thus, a V-shaped recovery to $50,000 and higher looks difficult. "Resistance is now initially near $53,000, although it does not look in store for a near-term test," Stockton noted, adding that intermediate-term momentum is to the downside.

Other analysts hold a similar view. Pankaj Balani, CEO of Delta Exchange, told CoinDesk on Friday that the recent price crash has eroded confidence, and bitcoin will take some time to regain upward momentum.

According to Julius de Kempenaer, a senior technical analyst at StockCharts.com, bitcoin's immediate outlook remains bearish, as the lower-highs, lower-lows structure on the price chart remains intact despite the recovery to $40,000.

A move above the resistance band of $42,000-$43,000 would invalidate that bearish setup, although Kempenaer said he doesn't foresee that happening in the short term.

"This rebound has potential towards the resistance area between $42k-43k, which will be hard to overcome straight out of the recent low," Kempenaer said in an email. "Very likely more time is needed to build up a new base."

Also read: Number of Bitcoin Holders Shoots to Record High, Data Shows

Bitcoin fell from $58,000 to nearly $30,000 in the eight days to May 19, shaking out excess leverage and weak hands from the crypto market. Both Stockton and Balani had warned of a sell-off to $42,000-$45,000.

The cryptocurrency has stabilized in the last few days, with the upside capped by the 200-day simple moving average, currently $40,635.