Bitcoin’s breakdown below the $40,000 support level suggests that the cryptocurrency is on a bearish long-term development, Fairlead Strategies’ Katie Stockton said in a Monday note.
According to the technical analyst, Bitcoin’s $40,000 key support level confirms the breakdown as two weekly Friday closes continue. The breakdown in the largest cryptocurrency implies that there is an elevating downside risk that could push Bitcoin to $27,200; a 29% from the current price.
“Because the monthly [moving average convergence/divergence indicator] is on a ‘sell’ signal, and the monthly stochastics are pointing lower above oversold levels, there is room for further downside in the months ahead,” Stockton explained.
The MACD indicator tracks the movement of moving averages of security and is separate from moving average crossover strategies that include the widely followed death cross and golden cross. Traders use the MACD indicator to gauge short and long-term momentum trends for a security.
“There is a bearish whipsaw in the weekly MACD that we see as a negative intermediate-term catalyst that increases risk to fibonacci support near $27,200,” Stockton said.
Stockton’s long-term and intermediate-term momentum indicators are in bearish territory. However, her short-term indicator is in neutral territory, suggesting that there could be some upside whipsaw movement in the near term.
“Resistance is defined by the 200-day [and] ~40-week moving averages, currently near $47,200,” Stockton said. A surge to that level would represent a potential upside of 23% from current levels. But that resistance target is set to be revised lower upon downside follow-through, Stockton said.
The last time bitcoin saw its monthly MACD hit a “sell signal” was from March through June of 2020, while the last prolonged monthly MACD sell signal was from July 2018 through May 2019, amid the ongoing unwind of bitcoin’s late 2017 bull run, Stockton told Insider.
Bitcoin is down 44% from its record November high of about $69,000, and is down 18% year-to-date.