Should You Trust A Bitcoin Bottom?

It has been an ugly week in cryptocurrencies as even some of the largest investors have seen jaw-dropping losses. At the end of April there were several experts looking for Bitcoin
to hit $100,000 by the end of 2022. I have seen similar eye-popping forecasts in the past and have always been concerned that a novice investor might buy based on these over-the-top forecasts.

In my April 29th article “Key Bitcoin Levels To Watch” I wanted to explain how technical analysis can be used to determine the trend of cryptocurrencies. Of course, risk management is essential for both investors and traders. From the charts, one can identify price levels that if broken will indicate a trend change.

My analysis of the weekly chart indicated that the failing rally to the yearly pivot at $48,259 in late March, point 1, was a sign of weakness. Prices need to be above the yearly pivot to indicate a positive yearly trend. A decline below the support at line c, would indicate that the rally from the January low was over and that the downtrend has resumed.

Last week’s close at $34,033 was below this support which indicated that Bitcoin was likely to drop to $28,908 and $29,320 if not the yearly pivot support (S1) at $27,540. The low last week was $25.853 which was below the yearly S1 support at $27.540.

The weekly MACD-His had formed lower highs in 2021, line f, which indicated a loss of upward momentum. It only turned barely positive when Bitcoin reached the yearly pivot level and then turned negative once more. It has dropped sharply this week consistent with the negative weekly trend.

The daily chart of Bitcoin shows that is had formed a trading range, lines a and b, from the January lows. This occurred after the sharp drop from the November high at $68,978. In technical analysis, this is known as a continuation pattern or a pause in the prior trend. The completion of the trading range on May 5th, point c, on increasing volume was a sign that the downtrend had resumed.

The high volume as Bitcoin declined confirmed the price action but as prices tried to stabilize on Friday, May 13th the volume was quite low. The MACD-His had been forming lower highs since February, line e, which was a sign of decreasing positive price momentum. The MACD-His turned negative on April 5th, point f, when Bitcoin closed at $45,501. The MACD-His formed lower lows last week and shows no signs yet of a bottom.

While most technical analysts avoid using absolute terms like always or never in their analysis my decades of studying the price behavior of all asset classes makes it very unlikely that last week’s lows will hold even though some are already looking for a bottom. The fact that the trading range (lines a and b) formed over three months would typically project at least a six to ten-week decline.

The severity of last week’s losses and the 99% plunge in Terra (LUNA) to almost zero suggests that any bounce may be short-lived. From a technical standpoint, we could see a rebound to the initial resistance in the $31,500-$32,500 area. The declining 20 day EMA closed Friday at $34,264 which is just above the 38.2% Fibonacci resistance at $34,141.

Range bound trading between $28,000 and Thursday’s high at $39,964 for a few days is possible before another wave of selling. The analysis of Ether
eum to USD looks equally negative with minor resistance at $2250 to $2426 and I will Tweet a chart over the weekend.

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