A long-term price indicator has turned bearish for the first time in four years, threatening to impede continued gains in bitcoin's price.
Despite the rally late in the month, the cryptocurrency dropped 19 percent in May, according to Bitfinex data, pushing the 5-month moving average (MA) below the 10-month moving average for the first time since June 2014. The bearish moving average crossover validates the argument that long-term bull market has ended and indicates scope for further losses.
The monthly chart also shows BTC fell below $7,698 – the 61.8 percent Fibonacci retracement of the rally from $162 (2015 low) to $19,891 (2017 high) – last month, bolstering the already bearish technical setup.
However, the 4-hour chart is distinctly more bullish, indicating that gains could continue in the short-term.
Going strictly by the monthly chart, BTC could drop to the immediate support of $6,000 (February low) and possibly extend the decline further towards $4,384 (78.6 percent Fibonacci retracement).
However, bitcoin had to drop 19 percent in May to push the 5-month MA below the 10-month MA. So, it's likely the bears have run out of steam, at least for the short-term. Thus, a corrective rally could be in the offing before the bearish effect of the long-term moving average crossover is felt.
Indeed, the short duration chart does show a scope for a rally to $7,800.
Bitcoin created another higher low (bullish pattern) as it recovered from the low of $7,414 yesterday. The 50-candle MA has now shed bearish bias) and the RSI is above 50.00 (bullish territory) and rising.
The price action, when viewed against the backdrop of Tuesday's bullish outside-day candle and the bullish price-RSI divergence, indicates scope for a rally to $7,818 (falling trendline resistance).
- The 5-month and 10-month MA bearish crossover has boosted the odds of a drop below the February low of $6,000.
- In the short-term, bitcoin could rise to $7,818, while a high-volume break above the falling trendline hurdle would open the doors to $8,310 (5-month MA).
- However, only a convincing move above $9,990 (recent high) would revive the long-term bullish outlook.
- Bearish scenario: Bitcoin could drop below $7,000 over the weekend if the cryptocurrency closes (as per UTC) below the descending (bearish) 10-day MA, currently located at $7,419.
Miniature man in a maze image via Shutterstock
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.