Blockchain
Navigate the dynamics of the Bitcoin market through technical analysis
Technical analysis has long been relied upon to invest in cryptocurrencies. The discipline lends itself well to a highly volatile asset class, not only because cryptocurrencies are driven by momentum, but also because they are generally subject to less principal risk than stocks, which can confuse 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 source relatively strong inputs to spot opportunities.
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Real-time bitcoin chart analysis shows that, starting from the beginning of May 2024, there has been a loss of medium-term momentum indicators such as MACD (Moving-Average-Convergence-Divergence), which has a bearish crossover. The loss of momentum suggests that bitcoin is in a corrective phase that is expected to persist for at least another few weeks. The downside risk can be framed by the next support on the chart, near $51,500, defined by a 38.2% Fibonacci retracement of the uptrend from the 2022 low and supported by a rising 200-day moving average.
The loss of momentum should be viewed in a long-term bullish framework. Bitcoin hit new all-time 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 bottom is in place, the risk/reward ratio will be more favorable for investors.
THE 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, the stochastic has room to reach oversold territory (20%), increasing the likelihood that a deeper decline in price will occur before the long-term uptrend resumes. A recovery of the Weekly Stochastic from oversold territory would be a positive short-term technical catalyst for bitcoin, regardless of the level at which it occurs.
A useful relative strength input for identifying potential winners and losers in the cryptocurrency market is a Relative rotation graph® or RRG. The RRG shows the altcoin’s rotation normalized to bitcoin, which is in the crosshairs of the chart. There is an inherent clockwise rotation of altcoins in the RRG, which helps us determine when certain altcoins rotate in favor or out of favor against bitcoin.
Most of the altcoins in the chart are pointing 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 the majority of altcoins in the lower left of the chart to eventually rotate in favor as a more risk-on positioning re-emerges, a sign that the corrective phase has matured.