Story by: Omkar Godbole
- Bitcoin’s 50- and 100-week moving averages (MAs) look set to produce a bullish crossover next week. Back in 2016, the same cross marked the start of a long-term bull market.
- Prices could rise to key trendline resistance at $7,600 in the short-term. A break higher would expose the recent high of $7,870.
- The short-term bullish case would be invalidated if prices drop below $6,847.
A bitcoin price indicator that marked the beginning of the 2016-17 bull market is about to make another appearance.
The cryptocurrency’s 50-week MA is on track to cross above the 100-week MA next week. The resulting bullish crossover would be the first since May 2016, according to Bitstamp data.
MA crossovers are momentum indicators and help traders gauge the market trend. A bullish cross, therefore, suggests a rally is about to gather steam or a bull market is on the horizon.
It’s worth noting that MA studies are based on historical data and that crossovers, especially longer duration ones, tend to lag prices. For instance, the 50-week MA is based on one-year-old data and the 100-week MA is sensitive to the price action seen over the last two years.
Put simply, the price rise from the December 2018 low of $3,122 to the June 2019 high of $13,880 has put the 50-week MA on an upward trajectory.
So it could be argued that the impending bull cross is a lagging indicator and has limited predictive powers.
Even so, the chart pattern warrants attention due to the fact that bitcoin broke into a 19-month long uptrend with the bullish crossover of the same averages in May 2016.
Weekly chart (2015-2017)
The 50-week MA found acceptance above the 100-week MA in the last week of May 2016, following which the cryptocurrency picked up a strong bid near $430 and charted its way a record high of around $20,000 in December 2017.
The low of $377 registered four weeks ahead of the confirmation of the crossover was never put to test again.
(Interestingly, bitcoin’s bear market from the December 2013 highs above $1,160 ran out of steam with a bearish crossover of the same two averages in April 2015.)
Similar price action was observed earlier this year, as seen below.
Weekly chart (2018-19)
Bitcoin charted a higher low of $3,700 in February, despite confirmation of a bear cross, signaling an end of the bear market following record highs near $20,000.
With history perhaps looking to repeat itself, there’s some reason to believe the upcoming bull cross of the 50- and 100-week MAs could bode well for bitcoin.
As for the next 24 hours, the probability of bitcoin witnessing an upside move is high. At press time, the cryptocurrency is changing hands at $7,270 on Bitstamp, representing a 0.75 percent drop on the day.
Daily and three-day charts
The long lower wicks attached to the previous two daily candles represent a rejection of lower prices or seller exhaustion. This, coupled with the MACD histogram’s bullish turn to above zero indicates scope for a re-test of the descending trendline, currently at $7,600.
Also, with prices holding well above $6,847, the bullish hammer reversal pattern confirmed on the three-day chart last week is still valid.
That pattern would be invalidated if prices drop below $6,847, opening the doors for re-test of recent lows near $6,500.