Bitcoin's (BTC) recent technical failure at key price resistance has raised the risk of a deeper pullback, according to analysts studying price charts.
The leading cryptocurrency's upswing has recently stalled, with prices failing to crack resistance at $25,200, which capped the August bounce.
"Bitcoin has been unable to break out above trading range resistance near $25.2K, resulting in a whipsaw lower for the daily MACD," Katie Stockton, founder and managing partner at Fairlead Strategies, said in a note to clients on Monday, using the acronym for "moving average divergence/convergence," an indicator used to gauge trend strength and trend changes. "Given the MACD 'sell' signal, and with room to oversold levels per the daily stochastics, we shift to a bearish short-term bias."
Stockton expects bitcoin to revisit $20,000 after brief stabilization at around the 50-day simple moving average, currently at $22,567. At press time, bitcoin was changing hands near $23,500.
The MACD histogram has recently dropped below zero, indicating a bearish shift in momentum. Aficionados of technical analysis consider MACD's bearish shift to be a sell signal.
Meanwhile, the stochastic indicator, used to gauge overbought and oversold conditions, is yet to fall below 30, implying room for price declines. A reading below 30 indicates an asset is oversold and usually marks an end to price drops.
According to Alex Kuptsikevich, senior market analyst at FxPro, bitcoin's weekly chart also favors a deeper pullback.
"Technically, bitcoin is selling off after touching its 200-week moving average. And due to the negative momentum at the end of the week, it has also fallen below the 50-week moving average. This dynamic may be a prologue to further declines, a predictable tug-of-war near trend levels," Kuptsikevich said in an email on Monday.
Bitcoin has turned lower from its 200-week simple moving average (SMA) after facing rejection above the same for two consecutive weeks.
The 50-week SMA has dropped below the 200-week SMA, producing what is known as the "death cross," a bearish development.
The expected price decline, however, would be a temporary bull breather, according to Kuptsikevich.
"A pullback in bitcoin to $21.5K would remain a correction within a bull market, but a sharp drop below that level could force a reassessment of whether we are out of a bear market," Kuptsikevich said.
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