Bitcoin’s plunge produces technical signal that implies 60% more downside to come
“Longer term dip buying right now appears less likely and bearish momentum is reinforced,” writes Tallbacken Capital Advisors CEO Michael Purves.
The rout in bitcoin is poised to produce a bearish technical signal that has meant “substantial more downside to come” in four of its prior five instances, according to Michael Purves, CEO of Tallbacken Capital Advisors.
He’s looking at the signal generated from the monthly moving average convergence/divergence indicator (or MACD). The technical gauge, in this case, takes the difference between the 26-month exponential moving average (EMA) of an asset with its 12-month EMA. The difference between those two is the MACD — and when that MACD crosses below its own nine-month EMA, what’s known as the signal line, that’s considered to be bearish (vice versa if crossing above).
November is slated to be the sixth time this monthly MACD sell signal has been generated in bitcoin’s history. 80% of the time, bitcoin has gone on to fall about 60% after this technical breakdown occurs.
“Longer term dip buying right now appears less likely and bearish momentum is reinforced,” Purves wrote.
Separately, Purves also observed that bitcoin has had a much higher positive correlation with other asset classes compared to the first half of 2021, another period when there was immense appetite for tech stocks in general and speculative ones in particular. However, he expects some of this strong relationship to begin to wane in the near term.
“In the immediate term, we note that Bitcoin is very oversold (daily RSI) at 22 and has been bouncing off the 80k level, the point of the Liberation Day lows,” concluded Purves, who does not have a position recommended on the crypto asset as this time. “Some near term consolidation should be expected.”
