Key Bitcoin Price Indicator Turns Bearish, But It May Not Be Bad News

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• Bitcoin’s monthly MACD histogram, a lagging indicator, has turned bearish for the first time since May.
• A break below the recent low of $6,511 is needed to validate the MACD’s bearish turn. That level may come into play if prices find acceptance under the Dec. 4 low of $7,087.
• A UTC close above $7,087 (Nov. 29 high) would revive the short-term bullish outlook.

A widely followed long-term bitcoin chart indicator has turned bearish for the first time since May.

The monthly MACD (moving average convergence divergence) histogram, an indicator used to identify trend changes and gauge trend strength, has crossed below zero to indicate a bullish-to-bearish trend change in prices.

Some observers have called the MACD’s bearish turn bad news for bitcoin. The indicator, however, is based on 12- and 26-month exponential moving averages (EMAs) and tends to lag prices.

Therefore, the latest bear cross has limited predictive powers and is more a confirmation or result of the prevailing bearish trend as represented by the sell-off from the June high of $13,880 to the November low of $6,500.

A popular Twitter analyst going by the name of "Mr. Anderson" (@TrueCrypto28) told CoinDesk that, as the the monthly MACD is a lagging indicator, traders should focus on smaller time frames.

"Even if we are about to interpret it as bearish, that is coming after a mover from $14K to $7k and is woefully late," Mr. Anderson said. "If someone likes the MACD, the weekly is plenty proficient. And the daily would do you just fine as well."

Some analysts may argue that monthly MACD crossovers have proved reliable in the past. For instance, BTC dropped sharply in 2014 and 2018 following bearish crossovers of the histogram.

Monthly chart

The MACD’s move below zero in July 2018 was followed by three months of sideways trading and a sharp slide to levels below $4,000 in November.

On similar lines, in 2014, bitcoin fell from $490 to $150 in the five months following the confirmation of the bear cross in August.

Even so, the latest crossover should not demoralize the bulls, as the broader market conditions are different today than those in the above instances.

Back in 2014 and 2018, bitcoin was coming off record highs and, with the histogram’s bearish turn, traders likely found a reason to take profits or sell the cryptocurrency.

This time, the MACD’s shift is not preceded by record highs: the cryptocurrency topped out at $13,880 (well short of the lifetime high of $20,000) at the end of June.

More importantly, the 52 percent drop seen over the last five months is widely being viewed as a corrective move in a broader uptrend from lows near $4,000 seen in early April. Additionally, there are signs of seller exhaustion on the technical charts.

3-day chart

Bitcoin charted a classic long-tailed hammer candle in the three days to Nov. 26, signaling bearish exhaustion near six month lows. The cryptocurrency posted a strong bullish follow-through in the following three days, confirming a bullish reversal.

The short-term bullish case weakened with Wednesday’s strong rejection at $7,800, however. Prices are still holding above $6,511, even so, meaning signal of seller exhaustion is still valid.

The monthly MACD’s bearish reading would gain credence only if prices find acceptance below $6,511.

Daily chart

A UTC close above the Nov. 29 high of $7,870 is needed to invalidate the lower-highs setup and revive the short-term bullish case. A bullish close, if confirmed, would open the doors for $8,500.

On the downside, $7,087 is key support. A drop below that level would validate an inverted bearish hammer created on Dec. 4 and likely invite stronger selling pressure leading to a drop to recent lows near $6,500.

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