That bitcoin (BTC) may be closing on a long-term bottom is generally accepted by now.

After all, the leading cryptocurrency by market value has dropped by close to 70 percent over the last 13 months.

The challenge now is to pick up early signs of a long-term bearish-to-bullish trend change, which may be possible with the help of the 10-week simple moving average (SMA).

Acting as resistance, that moving average proved a tough nut to crack in the eight weeks to Nov. 14 – the day BTC reentered the bear market with a big drop below $6,000.

Further, BTC has charted bearish-lower highs above the 10-week SMA in the last 13 months. Hence, acceptance above that hurdle could be considered a sign that the process of bearish-to-bullish trend change has begun.

As of writing, BTC is trading at $3,630 on Bitstamp, representing a 2.5 percent gain on a 24-hour basis. Meanwhile, the 10-week SMA is located at $3,919.

It is worth noting that a full confirmation of a longer-term bullish reversal would be a convincing break above the former support-turned-resistance of the 21-month exponential moving average (EMA), currently at $5,400.

Weekly chart

As seen above, BTC repeatedly failed to cross the 10-week SMA on a weekly closing basis (Sunday’s, as per UTC) before falling below $6,000 on Nov. 14.

Prior to that, BTC did cross the 10-week SMA in the last week of both February and April, the third week of July and in the last week of August. These bullish breakouts, however, were short-lived: BTC fell back below the 10-week SMA in the following two weeks, trapping the bulls on the wrong side of the market (marked by arrows).

Put simply, the cryptocurrency has struggled to breach the 10-week SMA throughout the ongoing bear market.

As a result, only a sustained break above the 10-week SMA (at least four weekly candles above the average) would imply bullish reversal.

The outlook remains bearish as long as prices are trading below the downward sloping 10-week SMA of $3,919.

Daily chart

BTC closed back above $3,566 (Dec. 27 low) yesterday, establishing a sideways channel on the daily chart.

With the weekly chart still biased toward the bears, the lower end of the channel, currently at $3,465, could be breached soon. A channel breakdown, if confirmed, would boost the prospects of a drop to the December low of $3,122.

View

  • A sustained break above the 10-week SMA could be considered an early sign of long-term bullish reversal, although prospects of a near-term move above that average look bleak.
  • A channel breakdown on the daily chart would bolster the bearish setup and allow a test of demand around the December low of $3,122.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Credits to Omkar Godbole

Leave a Reply

Your email address will not be published. Required fields are marked *
You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>