The technical outlook for bitcoin and other digital currencies has come somewhat unhinged, with all major coins breaking down over the past few sessions, setting up patterns that could spell disaster for digital-currency bulls.
One day after falling 10%, trading to a three-and-a-half-week low, bitcoin righted the ship Thursday, holding above the crucial $6,000 level. However, while the wave of selling has moderated for now, Rob Sluymer of Fundstrat Global Advisors said the technical outlook for bitcoin is bleak.
âAt the risk of stating the obvious, the crypto technical backdrop continues to deteriorate despite news flow that many investors would argue is incrementally improving,â wrote Sluymer in a research note. In a phone call with MarketWatch, Sluymer added that the pause near $6,100 was not at all surprising given how oversold bitcoin had become on a Relative Strength Index basis, a momentum indicator that measures speed and change of price movements.
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After staging an early summer rally, the change in fortune for bitcoin
Â began on July 24, when for the third time since March 21, it failed to breach its 200-day moving average, another closely watched momentum indicator. From there it began a sharp decline, culminating in 10 losing sessions out of 11.
From here, Sluymer said support levels are few and far between. After the $5,300 to $5,500 support, the next support is $3,520, the 84% retracement from the all-time high made on Dec. 17, 2017.
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Is there a contrarian case?
Fundstratâs managing partner Tom Lee, one of the biggest bulls in the digital currency market, hasnât given up hope for a year-end rally, holding his price target of $25,000, which would represent a 280% increase over the next five months.
However, his colleague Sluymer said we havenât reached a period of âitâs so bad itâs good.â
âWhile we appreciate the contrarian sentiment above, beyond short-term trades, we donât believe the technical decay has reached the type of extremes yet to support a major contrarian call,â wrote Sluymer. And should bitcoin stage a turnaround, expect gains to be limited.
âWith this pattern in place, expect rebounds to stall at a similar retracement of the July rebound, which coincides with its declining 15-day moving average near $7,500,â he said.
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