Bitcoin has slumped 3 percent a day after the short-covering fueled rally ran out of steam. The cryptocurrency which had hit a fresh 2-month low of $221.11 raced to hit an intraday high of $237.66 as a big chunk of short positions unwound near the important floor of $220.
Bitcoin is now trading at $228.63.
Technically, Bitcoin is grossly oversold considering the daily charts but, if we take a bigger view and study weekly charts instead, we get a very different picture.
Below are the technical observations made from studying the weekly BTC-USD price chart.
Bitcoin Chart Structure – A look at the weekly chart above clearly says that Bitcoin has come to its crucial support – a trendline drawn from connecting the weekly closing lows of 2015. Bitcoin has earlier taken support from this line at least twice, and the market participants are closely watching for negative surprises this time.
Although there is a slight sense of complacency in the Bitcoin market that the support would not get violated, it cannot be entirely ruled out.
Moving Average Convergence Divergence – The Histogram maintains its positive stance with a value of 3.0530. But, the more interesting part is that the MACD is now on the brink of crossing the Signal Line on the downside (see the chart above). If it does that, more pressure on the Bitcoin price can be expected. MACD is at -7.5447 while the Signal Line is at -10.5978.
Momentum – The weekly Momentum reading has just now dipped into the negative waters. The latest observation is -3.4600.
Money Flow Index – The MFI is surprisingly unhelpful at 50.0545.
Relative Strength Index – The RSI value continues to decline, hitting a value of 41.4479.
Bitcoin is at a very crucial juncture, both from the chart structure and the technical indicators’ perspective. An immediate breach of the support would cause panic selling and can send the price crashing down to $150-170.
But, until the support holds, cover your short positions and considering building light long positions by maintaining a stop-loss south of the support.