Bitcoin has charted a so-called death cross with recent the drop to $7,400. The bearish cross comes as a result of the 47 percent slide from the 2019 high of $13,800, and as such is a lagging indicator.
Historical data shows BTC tends to bottom out after a death cross.
The cryptocurrency has picked up a bid at press time, but is yet to invalidate the bearish case with a move above the Sept. 30 low of$7,714.
A long-term bitcoin price indicator has turned bearish, courtesy of the cryptocurrency’s sharp drop in the last four months.
The 50-day moving price average (MA) crossed below the 200-day MA today, confirming a “death cross” for the first time since March 31, 2018, according to Bitstamp data.
The long-term bearish cross was preceded by a sharp drop from the 2019 high of $13,880 (June 26) to the low of $7,293 (Oct. 23).
To put it another way, the death cross is the product of the 47 percent slide from the high of $13,880. After all, the 50-day MA responds to the data that is at least 2.5-months old and the 200-day MA is sensitive to 6.5-month old data.
BTC topped out at $13,880 on June 26 and fell back to $9,000 in mid-July. The 50-day MA, however, continued to rise and topped out in mid-August, 6 weeks after BTC topped out above $13,800.
Meanwhile, the 200-day MA maintained an upward trajectory throughout the sell-off from $13,880 to recent lows below $7,300.
Currently, the 200-day MA is sidelined near $8,895 and the 50-day MA is trending south and is now around $8,890.
All-in-all, it seems safe to conclude that the death cross is a lagging indicator and happens when most of the correction has already taken place, as tweeted by popular trader @CryptoTutor following the confirmation of the bearish cross on March 31, 2018.
As seen above, the April 2014 death cross marked a major bottom in BTC from where the cryptocurrency rallied 100 percent.
It’s worth noting the bearish crossovers seen in September 2015 and April 2018 trapped sellers on the wrong side of the market, as discussed last Friday.
The latest bear cross poses the same threat, as prices have already dropped more than 45 percent. In fact, BTC is showing signs of life on confirmation of the death cross.
At press time, BTC is changing hands at $7,600 on Bitstamp, having picked up a bid near $7,393 earlier today. That said, it is still too early to call a bullish reversal.
The range breakdown confirmed on Wednesday is intact. Further, 5- and 10-day moving averages (MAs) are trending south, indicating a bearish setup. The relative strength index’s (RSI) downside break of the ascending trendline is also a bearish development.
BTC, therefore, remains on the hunt for a drop to key support levels at $7,200 (three-day chart 100-candle MA) and $7,000 (three-day chart 200-candle MA).
The bearish setup on the daily chart will remain valid as long as prices are holding below the former support-turned-resistance of $7,714.
The outlook would turn bullish if and when prices rise above $8,314 (Oct. 21 high). That would also validate the argument that the death cross is a contrary indicator.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; charts by Trading View