Bitcoin
What technical analysis tells us about the Bitcoin market
Technical analysis has long been relied upon to invest in cryptocurrencies. The discipline suits the highly volatile asset class well, not only because cryptocurrencies are driven by momentum, but also because they are generally subject to less headline risk than stocks, which can cloud supply/demand dynamics.
Investors can better understand the risk-reward dynamics of the cryptocurrency market by combining momentum indicators and overbought/oversold measures with the identification of key support and resistance levels. Investors can obtain relative strength data to help identify opportunities.
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Real-time analysis of the bitcoin chart shows that in early May 2024, there was a loss of medium-term momentum by momentum indicators such as the MACD (Moving-Average-Convergence-Divergence), which has a bearish crossover . The loss of momentum suggests that bitcoin is in a corrective phase that is likely to persist for at least a few more weeks. The downside risk can be framed by the next support on the chart, near $51,500, which is set by 38.2%. Fibonacci Retracement of the uptrend off the 2022 low and reinforced by a rising 200-day moving average.
The loss of momentum must be viewed within a long-term bullish framework. Bitcoin reached new highs in March 2024. The breakout extended bitcoin’s secular uptrend with implications for the coming months, if not years. This suggests that once there are signs that a corrective minimum is in place, the risk/reward ratio will be more favorable for investors.
O weekly stochastic oscillator, which is an indicator of overbought and oversold conditions, is a useful tool to help identify when a corrective low has been established. For now, Stochastics have room for oversold territory (20%), increasing the likelihood that a deeper pullback in price will occur before the long-term uptrend resumes. A rebound in the weekly stochastic from oversold territory would be a positive near-term technical catalyst for bitcoin regardless of the level at which it occurs.
A relative strength entry that is useful for identifying potential winners and losers in the cryptocurrency market is a Relative Rotation Chart® or RRG. The RRG shows the altcoin’s rotation normalized in relation to bitcoin, which is in the chart’s crosshairs. There is an inherent clockwise rotation of altcoins on RRG, helping us determine when certain altcoins are rotating in or out of favor relative to bitcoin.
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Most altcoins on the chart point down and to the left, which reflects bitcoin’s strong position in the market, particularly during a corrective phase that sometimes sees a flight to safety (in relative terms). We would expect most of the altcoins on the bottom left of the chart to eventually rotate in favor as more risk-on positioning resurfaces in a sign that the corrective phase has matured.
