Bitcoin’s longer duration chart is flashing a specific bull market signal for the first time in over three years.
On the weekly chart, the cryptocurrency’s 50-period moving average (MA) has crossed above the 100-period moving average, confirming what is popularly known as a “golden crossover.” The same cross was last observed in May 2016, according to Bitstamp data.
A golden cross occurs when a short-term moving average breaks above a long-term moving average on a specific time frame (daily, weekly, monthly) and is considered an advanced warning of an impending bull run.
MA crossovers are lagging indicators and merely confirm the prevailing trend, however. As such, they have limited predictive powers, as discussed last week.
That said, crossovers are widely followed indicators and attract a significant amount of buying if the broader market conditions are supportive, as seen below.
As can be seen (above left), bitcoin rallied more than 150 percent from $198 to $502 in the 11 weeks to Nov. 8, 2015, and then consolidated largely in the range of $360 to $470 before beginning the next leg higher with the confirmation of the crossover in May 2016.
The cross likely attracted buyers, as the preceding structure was positive – higher low and consolidation.
Further, the bull cross happened three months ahead of the reward halving (supply cut by miners), which took place in August 2016. By June 20, bitcoin had rallied by more than 120 percent to highs above $775.
The latest bull cross (above right) comes five months ahead of the next reward halving, due in May 2020. However, many experts, including Jason A. Williams, co-founder and partner of Morgan Creek Digital, believe the halving has been discussed extensively throughout the year and has been priced in.
Also, the preceding market structure is bearish: the cryptocurrency is trapped in a four-month falling channel and the bull cross is mainly the result of the sharp rally from $4,000 to $13,880 seen from April to June.
All in all, adopting a strong bullish stance on the back of the golden crossover could prove costly.
The case for a stronger upside move would strengthen once prices find acceptance above $7,870 (Nov. 29 high). At press time, BTC is changing hands at $7,470 on Bitstamp.
Bitcoin violated the falling trendline resistance on Dec. 4. So far, however, that has failed to invite buyers in numbers.
A UTC close above the Nov. 29 high of $7,870 is needed to invalidate the lower-highs set up and confirm a bullish reversal. That will likely yield a quick move higher to $8,500–$8,672 (61.8 percent retracement of the drop from $10,350 to $6,511).
On the downside, key support is located at $7,087. A violation there would validate the bearish inverted hammer created on Dec. 4 and would likely yield a drop to recent lows near $6,500.
Having faced rejection at the descending (bearish) 5-week MA at $7,561 during the Asian trading hours today, the cryptocurrency risks falling to support at $7,087.
The outlook as per the weekly chart would turn bullish if and when the four-month falling channel is breached to the higher side. That would imply a continuation of the rally from lows near $4,000 that started in early April.