Bitcoin's Price Breaks Through Key Support As Stocks Go South

Risk aversion in the US stock markets yesterday may have worked in favor of the bitcoin bears.

AccessTimeIconOct 19, 2018 at 11:00 a.m. UTC
Updated Sep 13, 2021 at 8:30 a.m. UTC

Bitcoin (BTC) has dropped out of the tight trading range seen recently, paralleling losses in the U.S. stock markets.

The leading cryptocurrency, which was trapped in a triangle pattern (narrowing range) above $6,400 yesterday, had looked set for a breakout. However, the bullish technical setup failed and BTC found acceptance below the triangle support of $6,430 at 17:30 yesterday. The downward move was possibly linked to risk aversion in the U.S. equities, with the S&P 500 opening on a negative note Thursday and closing with a 1.4 percent loss.

Bitcoin and the S&P have appeared to correlate on and off for almost a year, each taking turns as the leading indicator. Of late, the S&P 500 index has been leading the BTC market by 12 hours or more.

At press time, BTC is changing hands at $6,380 on Coinbase, representing a 1.19 percent drop on a 24-hour basis.

The triangle breakdown witnessed yesterday may have emboldened the bears. So far, however, the downside has been restricted around $6,350.

Hourly Chart

btcusd-hourly-chart-8

As seen in the above chart, the 50-, 100-, and 200-hour exponential moving averages (EMAs) have turned lower in favor of the bears following the range breakdown.

Further, the stacking order of the 50-hour EMA below the 100-hour EMA, below the 200-hour EMA is a classic bear signal.

Therefore, a drop to $6,230 could be in the offing.

BTC and S&P 500 chart

download-6-19

The above charts show:

  • BTC has likely carved out a classic bottom around $6,000.
  • Since June 2016, the S&P 500 has repeatedly found buyers around the 200-day MA. As a result, the dips to or below the MA have been short-lived.

If the S&P 500 finds acceptance below the 200-day MA, risk aversion will likely worsen and may push BTC below the all-important psychological $6,000 mark.

So, it seems safe to say that $6,000 and the 200-day MA line on S&P 500 are key levels to watch out for in the near-term.

View

  • The triangle breakdown has opened the doors to $6,230 (key support zone as per the hourly chart).
  • A move above $6,435 would invalidate the bearish setup.
  • A sustained move by the S&P 500 below the 200-day MA could be considered a warning that BTC is about to break below $6,000.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View 

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