Bitcoin bulls should be on guard: a key momentum indicator that has been uncannily accurate in signaling the sell-offs since the largest cryptocurrency hit a record high in October has just kicked in.
The indicator is the Moving Average Convergence Divergence Histogram, better known as MACD. It has just fallen below zero for the third time, indicating a new change in bearish momentum.
By the way, what is MACD?
Before we dive into the market signal, let’s see how MACD works.
The indicator uses two lines. The first is the MACD line, calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. The gap between the two helps indicate momentum.
The other is the Signal line, which is the nine-day exponential moving average of the MACD line itself.
But the really interesting part is the histogram. This plots the difference between the MACD and Signal lines.
When the histogram becomes positive, it signals bullish momentum; when it becomes negative, as it is currently, it signals bearish momentum. In both cases, the steepness of the slope indicates the strength of the momentum.
The indicator is popular because it eliminates market noise to provide a clear picture of strength and trend changes. And right now, we’re shouting “bearish.”
BTC gets crushed when MACD turns red
Since bitcoin surpassed $126,000 in October, the MACD has developed a near-perfect track record. When it turned bearish, Bitcoin collapsed. When it turned bullish, there were weak bounces that led nowhere.
The evidence is overwhelming. Bitcoin’s multi-week trading above $100,000 came to an abrupt end after the histogram dipped below zero on November 3. Prices fell from around $106,000 to $80,000 on November 21.
A brief rebound followed, as the MACD turned positive. But it was short-lived. Just two months later, on January 20, the MACD turned bearish again with bitcoin hovering around $90,000. The result was the same as before: a heartbreaking decline to near $60,000 on February 6, once again followed by a slight rebound, supported by a positive MACD with upside capped at around $75,000.
Each bullish crossover in the MACD so far has only produced disappointing bounces that quickly fade, paving the way for greater selling once the indicator turns red. This is a strong signal that the sellers are firmly in control, capable of crushing any attempt by the bulls to regain momentum.
And now the light is flashing red again. Of course, past performance does not guarantee future results. But when a signal with such a strong history flashes red, traders would be better off paying attention rather than throwing caution to the wind. Bitcoin’s resilience during the war with Iran may be about to collapse.
