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If Bitcoin Starts Closing Below the 50-Day SMA It May Mean Deeper Pullback Ahead
"The loss of bullish momentum is only short term in nature," one chart analyst said.
Bitcoin fell sharply on Sunday, dipping well below the 50-day simple moving average (SMA) support for the first time in six months.
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While the decline looks typical of a bull market correction, it could be extended further if prices find acceptance under the 50-day SMA, according to one analyst.
"The loss of [bullish] momentum is only short term in nature, but we would view consecutive closes below the 50-day SMA as a reason to move to the sidelines," Katie Stockton, technical analyst and managing partner of Fairlead Strategies, told CoinDesk in an email.
Bitcoin is currently trading near $55,150 on Coinbase, having dropped by roughly $8,000 to $52,148 during the Asian daylight hours. The 50-day SMA is located at $56,283.
According to Katie, back-to-back daily closes (23:59 UTC) below the SMA support would open the doors for the former resistance-turned-support near $42,000 (January high).
The 50-day SMA is one of the most widely-tracked averages along with the 100- and 200-day SMAs. As such, violation of these SMA supports often invites stronger chart-driven selling.
Theoretically, the concept of daily close does not apply to crypto markets, as it is functional 24/7, unlike stock markets, which are open only for limited hours during weekdays.
However, TradingView and other chart software open the new daily candle at 00:00 UTC, allowing technical analysts to assess the strength/weakness in the market depending on the daily open, high, low, and closing prices.
Despite the retreat from record highs seen earlier this week, bitcoin is still up 90% on a year-to-date basis, and the path of least resistance remains to the higher side.
"We believe the pullback is counter-trend, rather than the start of a bearish reversal because it follows a confirmed breakout to new highs," Stockton said, adding that the cryptocurrency will remain on the hunt for $69,000 even if we see a deeper drawdown below the 50-day SMA.
Also read: Spate of Old, Wrong or Dubious ‘News’ Spooks Rookie Investors, Fuels Crypto Selloff
Omkar Godbole
Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team based in Mumbai, holds a masters degree in Finance and a Chartered Market Technician (CMT) member. Omkar previously worked at FXStreet, writing research on currency markets and as fundamental analyst at currency and commodities desk at Mumbai-based brokerage houses. Omkar holds small amounts of bitcoin, ether, BitTorrent, tron and dot.
