Bitcoin (BTC) bulls may be in for a disappointment, Fairlead Strategies said, as a monthly technical indicator has flashed an "overbought downturn" signal.
The stochastic indicator, developed by George C. Lane in the 1950s, recently turned down from above 80, indicating a loss of upward momentum. The indicator oscillates between 0 and 100 with readings above 80 implying overbought conditions. Readings below 20 suggest the opposite. A turn lower from overbought levels represents a so-called overbought downturn, which indicates a weakening of upward momentum.
"At the end of August, bitcoin confirmed an overbought downturn in its monthly stochastics in a setback," Katie Stockton, Fairlead Strategies' founder and managing partner, said in a note to clients on Monday. "The downturn suggests the basing process may be drawn out, especially given the overhang of the monthly cloud model, which enhances resistance (~$31.9K) from the weekly cloud model."
The comment refers to bitcoin's repeated failure to scale the so-called "cloud resistance" at $31,900 in the past few months and points to a long, drawn-out basing or bottoming process. That's "a setback toward a long-term turnaround," Stockton wrote.
Previous overbought downturns in early 2021 and December 2017 marked major price tops.
The monthly MACD histogram, an indicator used to gauge trend strength and trend changes, is flatlined near zero, indicating neutral long-term bias.
Crossovers above zero indicate a bullish shift in momentum, while a drop below zero represents a bearish trend change. While the indicator bottomed out a year ago and has yet to turn positive "suggesting a sustainable uptrend is not yet in force," Stockton noted.
Bitcoin changed hands at $25,700 at press time. According to Stockton, the immediate support is seen at $25,200 while the 50-day simple moving average at $28,200 is key resistance.
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