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Technical Indicator Points to Bitcoin Price Bounce
The impending bearish moving-average crossover on the weekly chart has proven to be a contrary indicator in the past.
Updated May 11, 2023, 6:40 p.m. Published Jan 17, 2022, 12:51 p.m.
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A lesser-tracked technical analysis indicator is signaling good times ahead for bitcoin.
- The cryptocurrency's 10-week simple moving average (SMA) is about to dip below the 50-week SMA, confirming a so-called bearish crossover.
- Historically, the negative signal has proven to be a contrary indicator, marking interim price bottoms and the end of bear markets, as the chart above shows.
- The previous bearish cross dated mid-March 2020 occurred after bitcoin's coronavirus-induced crash to $4,000. Bitcoin picked up in the subsequent months, setting record highs above $20,000 by December.
- Similarly, bitcoin bottomed out and rebounded at least 25% following the confirmation of the negative crossovers in early January 2020 and mid-June 2018.
- Moving averages are based on backward-looking data. Thus, on weekly and monthly charts, bearish and bullish crossovers can be taken to represent oversold or overbought conditions and the potential for price bounce and bull market corrections.
- That said, technical studies are unreliable as standalone indicators and seasoned traders prefer to read chart-based signals with money flow and fundamentals, which are currently signaling a low probability of a significant price bounce.
- Bitcoin suffered a deeper drop following the confirmation of the first bear cross between 10- and 50-week MAs seen in September 2014.
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