- Bitcoin's weekly Chaikin Money Flow index is reporting the strongest bearish bias since February. Other weekly chart indicators are also calling a deeper drop, possibly to levels below recent lows near $7,750.
- The daily chart indicators suggest the corrective bounce has ended and sellers are again gaining strength.
- The ongoing risk aversion in the global financial markets could weigh over bitcoin.
- The short-term bearish case would weaken if prices rise above the 200-day average, currently located above $8,700, although, as of now, that looks unlikely.
Bitcoin is facing strongest selling pressure since February and has potential to drop below recent lows near $7,750.
The top cryptocurrency by market value fell from $8,326 to $8,086 in the 60 minutes to 17:00 UTC on Tuesday, confirming a downside break of the recent trading range of $8,450–$8,250, as expected.
Since then, the cryptocurrency has stabilized around $8,100. Some observers are of the opinion that BTC has carved out a temporary bottom near $7,750 and the drop from levels above $8,300 could be a bear trap.
That argument is logical if we take into account the seller exhaustion signaled by a bullish divergence of the 14-day relative strength index – a widely used technical indicator – confirmed last week.
So far, however, that has failed to excite investors, as noted on Tuesday. Further, longer duration indicators continue to report bearish conditions.
For instance, the weekly Chaikin Money Flow (CMF) index, which incorporates both prices and trading volumes to gauge buying and selling pressure, is currently printing a value of -0.14 – the lowest since mid-February.
A below-zero reading indicates that selling pressure, or the capital flight from the bitcoin market, is much higher than the buying pressure or inflow.
Put simply, the indicator shows the market is now at its most bearish since February and the path of least resistance for bitcoin is to the lower side. At press time, the cryptocurrency is changing hands around $8,120 on Bitstamp.
The CMF (above left) fell below zero at the end of September, confirming a bullish-to-bearish trend change and is now seen at -0.14.
Historically, negative readings have marked major bottoms. For instance, the CMF hit a low of -0.15 in February following BTC remained flat-lined below $4,000 for almost two months before breaking into a bull market in early April.
The latest bearish signal, however, looks reliable, as there are no signs of a bullish reversal on the weekly price chart.
More importantly, the CMF continues to lose altitude despite the repeated defense of the 100-week MA over the last three weeks – a sign the investor sentiment is still quite bearish. The index would have risen due to increased capital inflow if investors were convinced by the defense of the 100-week MA.
Further, the MACD histogram is also charting deeper bars below the zero line, indicating a strengthening of bearish momentum.
What's more, the 14-week RSI has convincingly breached the support band of 53.00-55.00. That region had served as strong support throughout the 2016-2017 bull market. The 5- and 10-week moving averages (MAs) are also trending south, indicating a bearish setup.
All-in-all, the stage looks set for a retest and possibly a break below the 100-week MA support at $7,758.
Daily candlestick and line chart
The 50-day MA holding below the 100-day MA is a bearish sign, according to Naeem Aslam, chief market analyst at ThinkMarkets FX and contributor for Forbes.
BTC created a bearish outside bar candlestick pattern on Tuesday, signaling a continuation of the sell-off from the Oct. 11 high of $8,820.
The RSI remains in bearish territory below 50 and the MACD is now producing shallow bars above the zero line, indicating the corrective bounce from $7,750 has ended.
The bullish divergence of the RSI on the daily line chart has lost its shine due to the strong rejection at the 200-day MA last week.
Risk-off may weigh over BTC
The bearish technical setup is accompanied by price-negative developments on the macro front.
Global economic growth is expected to fall to 3 percent this year, the lowest since the 2008 financial crisis and down from 3.8 percent seen in 2017, according to the International Monetary Fund (IMF).
Further, China-U.S. political tensions are escalating. The US House of Representatives on Tuesday passed bipartisan legislation in support of human rights in Hong Kong.
China sees the move as an intervention in its internal matters and has warned of retaliation if the U.S. continues to push forward Hong Kong-related bills.
As a result, the risk assets are flashing red across the board. As of writing, stocks in the U.K., Germany and France are reporting modest losses. The Shanghai Composite index fell by 0.44 percent during the Asian trading hours and the futures on the S&P 500 are currently shedding 0.36%.
Meanwhile, safe-haven assets like the Japanese yen and gold are better bid.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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