Story by: Omkar Godbole
- Bitcoin’s two-week moving average convergence divergence (MACD) histogram has turned positive for the first time since early February 2018, signaling a longer-term bearish-to-bullish trend change.
- While the MACD is a lagging indicator, the historical data indicates the previous bull market began following a positive crossover on the indicator.
- In the short term, BTC’s hourly chart indicators have turned bearish, so a drop to $5,000 could be seen in the next day or two if crucial support below $5,200 is breached.
- Prices may still rise to recent highs above $5,400 if the bulls can defend the that support level and drive price upwards.
A widely-followed bitcoin (BTC) price indicator has turned bullish for the first time in over a year, signaling a long-term bull reversal.
The moving average convergence divergence (MACD) histogram – used to determine trend changes and trend strength – has moved above zero on the two-week chart (15-days) for the first time since February 2018.
With the positive turn, the two-week MACD is the latest addition to the list of indicators calling a longer-run bullish reversal.
Experienced traders, however, may point out that the MACD is a lagging indicator. After all, the technical tool is arrived at by plotting the difference between the MACD line and the signal line, which are based on the backward-looking moving averages.
The indicator, therefore, tends to lag the price and has limited predictive abilities. Further, the longer the time frame, bigger is the lag. As a result, many would consider the bullish turn a result of the recent price rally rather than an advance warning of further gains.
It, however, gains credibility if we take into account the historical data, which shows the last positive crossover on the MACD, seen in July 2016, was followed by a 2.5-year-long bull market.
On the two week chart (left), the MACD histogram is printing positive for the first time for 14 months, after having charted a bullish divergence, or a higher low, in November.
Notably, the MACD created a similar looking bullish divergence 10 months before the long-term bearish-to-bullish trend change, as represented by the falling channel breakout, witnessed in October 2015 (right).
It’s worth noting that the indicator moved above zero four months before the bullish breakout and 12 months before the mining reward halving (which reduces the supply of new coins) that took place in July 2016. The MACD’s latest bullish turn is already accompanied by a falling channel breakout on the chart and has also turned positive 12 months before bitcoin’s third reward halving, due in May 2020.
With history possibly looking to repeat itself, prices may continue to create bullish higher highs and higher lows in the run-up to the halving event, as seen last time around.
In the short-run, though, BTC may have a tough time finding acceptance above the crucial 21-month exponential moving average, currently at $5,239, as discussed yesterday.
As for the next 24-hours, the cryptocurrency may suffer a drop to $5,000 if key support just below $5,200 is breached, validating the bearish indicators on the short duration charts.
On the hourly chart, the RSI continues to produce lower highs in favor of the bears as opposed to higher highs, while the MACD has turned negative.
The price, however, is still holding above $5,190 – a level, which acted as strong support (see horizontal line above) yesterday.
The bearish indicators would gain credence if the support at $5,190 is breached, leading to a deeper drop.
Acceptance below $5,190 would boost the probability of BTC completing the right shoulder of a bearish head-and-shoulders pattern on the 4-hour chart with a drop to the neckline support, currently at $5,000.
The bearish case would weaken if a potential bounce from the support at $5,190 ends up clearing psychological resistance at $5,300. That could be followed by a retest of the recent high of $5,466.
As of writing, bitcoin is trading at $5,241 on Bitstamp, representing a 1 percent gain on a 24-hour basis.by